nep-com New Economics Papers
on Industrial Competition
Issue of 2024‒02‒12
twenty papers chosen by
Russell Pittman, United States Department of Justice

  1. Search Engine Competition By Daniel Garcia
  2. Taking over the World? Automation and Market Power By Haarburger, Richard; Stemmler, Henry
  3. Union structure and product quality differentiation By Meccheri, Nicola; Vergari, Cecilia
  4. General equilibrium, welfare and policy when firms have market power By Moreno, Diego; Petrakis, Emmanuel
  5. The Modern Wholesaler: Global Sourcing, Domestic Distribution, and Scale Economies By Sharat Ganapati
  6. Partition-form Cooperative Games in Two-Echelon Supply Chains By Gurkirat Wadhwa; Tushar Shankar Walunj; Veeraruna Kavitha
  7. How Do Firms Respond to Unions? By Dodini, Samuel; Stansbury, Anna; Willén, Alexander
  8. Market power and innovation in the intangible economy By De Ridder, Maarten
  9. Input price dispersion across buyers and misallocation By Ariel Burstein; Javier Cravino; Marco Rojas
  10. Structural Change and the Rise in Markups By Ricardo Marto
  11. Policy lessons from China: A quantitative examination of China's new competition regime for the digital economy By Baum, Leonard; Bryson, Joanna J.
  12. Access charges in software-based termination monopolies By Steffen, Nico; Kroon, Peter; Abbasi, Faisal Aman; Wiewiorra, Lukas
  13. Preis- und Qualitätsstrategien im Briefmarkt: Auswirkungen auf den Zustellwettbewerb in Deutschland By Niederprüm, Antonia; Junk, Petra
  14. Position Statement on the European Commission’s Proposal for a SEPs Regulation By Niccolò Galli; Igor Nikolic; Marco Botta
  15. From AI Adoption to Exploitation: the Role of Complements and Competition By Nicolas Ameye; Jacques Bughin; Nicolas van Zeebroeck
  16. Understanding Innovation in Interoperable Systems: A Podcasting Case Study By Luria, Michal; Nicholas, Gabriel
  17. Firm hierarchy and the market for knowledge By Fabio Pieri; Massimiliano Vatiero
  18. A Difficulty in Characterising Mixed Nash Equilibria in a Strategic Market Game By Bailey, Ralph W.; Kozlovskaya, Maria; Ray, Indrajit
  19. The Role of Industries in Rising Inequality By Briskar, Juraj; di Porto, Edoardo; Rodriguez Mora, José V.; Tealdi, Cristina
  20. The chicken-and-egg problem in the European Union Digital Markets Act By Fiona M. Scott Morton

  1. By: Daniel Garcia
    Abstract: This paper studies a model of search engine competition with endogenous obfuscation. Platforms may differ in the quality of their search algorithms. I study the impact of this heterogeneity in consumer surplus, seller profits and platform revenue. I show that the dominant platform will typically induce higher prices but that consumers may benefit from asymmetries. I also show that enabling sellers to price-discriminate across platforms is pro-competitive. I then embed the static model in a dynamic setup, whereby past market shares lead to a better search algorithm. The dynamic consideration is pro-competitive but initial asymmetries are persistent.
    Keywords: search engine, platform competition, consumer search
    JEL: D43 D83 L13 M37
    Date: 2023
  2. By: Haarburger, Richard; Stemmler, Henry
    Abstract: This paper studies how automation technology affects market power in the global economy. We develop a theoretical model in which firms' markups are endogenous to factor input choices based on technology levels, but are also affected by technology adoption of other domestic and foreign firms. In an empirical analysis, we find that market power, measured as the markup of price over marginal cost, declines on average with higher levels of automation. However, there is substantial heterogeneity, with firms in the highest revenue and markup quintile gaining market power. Moreover, we find that exposure to foreign automation increases competition in the local market.
    Keywords: Automation, Markups, Robots, Market Concentration
    JEL: O33 F41 F12 D43
    Date: 2023
  3. By: Meccheri, Nicola; Vergari, Cecilia
    Abstract: This paper investigates the issue of how alternative unionization structures in labour markets affect the choice of product quality differentiation by firms in product markets, and how this determines relative welfare outcomes of different union structures. In the presence of decentralized wage bargaining (firm-specific or coordinated unionization), increasing product differentiation not only reduces competition between firms but it also affects wage setting. Instead, when wage setting is centralized, wages do not depend on product quality differentiation in the product market but when the bargained wage is sufficiently high, the high-quality firm monopolizes the market. In turn, union wage setting does affect the endogenous choices by firms of the quality level of their products: especially when unionization is decentralized and unions have high relative bargaining power, the average product quality in the product market increases remarkably. However, as unionization reduces output, consumer surplus and overall welfare are always lower with respect to the case in which labour market is perfectly competitive, and decentralized unionization is generally welfare enhancing with respect to centralized unionization.
    Keywords: unionization structures, vertical differentiation, welfare
    JEL: J51 L13 L15
    Date: 2024
  4. By: Moreno, Diego; Petrakis, Emmanuel
    Abstract: We consider a simple private goods market economy and show that when firms have market power the equilibrium real wage, employment, real output, and labor share are less than under perfect competition. Contrary to common wisdom market concentration may have non-monotonic general equilibrium effects: the equilibrium allocation of a monopolistic economy may Pareto dominate that of an oligopolistic economy. Corporate taxes provide an appropriate instrument to pursue distributional objectives since, unlike taxes on labor income, they do not create additional deadweight losses. An appropriate minimum real wage improves efficiency and increases the labor share in a monopolistic economy, whereas in an oligopolistic economy its efficiency effects are uncertain due the existence of multiple equilibria.
    Keywords: Income Distribution; General Equilibrium; Market Power; Oligopoly; Monopoly; Minimum Wage Policy
    JEL: D4 D5 D6 L1 L4
    Date: 2024–01–25
  5. By: Sharat Ganapati
    Abstract: Nearly half of all transactions in the $5 trillion market for manufactured goods in the United States were intermediated by wholesalers in 2012, up from 32 percent in 1992. Seventy percent of this increase is due to the growth of “superstar” firms - the largest one percent of wholesalers. Estimates based on detailed administrative data show that the rise of the largest firms was driven by an intuitive linkage between their sourcing of goods from abroad and an expansion of their domestic distribution network to reach more buyers. Both elements require scale economies and lead to increased wholesaler market shares and markups. Counterfactual analysis shows that despite increases in wholesaler market power and markups, scale has benefits. Buyers gain access to globally sourced varieties, nationwide distribution networks, and increased quality while wholesalers decrease their marginal costs.
    JEL: D43 F14 L13 L81 R12
    Date: 2024–01
  6. By: Gurkirat Wadhwa; Tushar Shankar Walunj; Veeraruna Kavitha
    Abstract: Competition and cooperation are inherent features of any multi-echelon supply chain. The interactions among the agents across the same echelon and that across various echelons influence the percolation of market demand across echelons. The agents may want to collaborate with others in pursuit of attracting higher demand and thereby improving their own revenue. We consider one supplier (at a higher echelon) and two manufacturers (at a lower echelon and facing the customers) and study the collaborations that are `stable'; the main differentiator from the existing studies in supply chain literature is the consideration of the following crucial aspect -- the revenue of any collaborative unit also depends upon the way the opponents collaborate. Such competitive scenarios can be modeled using what is known as partition form games. Our study reveals that the grand coalition is not stable when the product is essential and the customers buy it from any of the manufacturers without a preference. The supplier prefers to collaborate with only one manufacturer, the one stronger in terms of market power; further, such collaboration is stable only when the stronger manufacturer is significantly stronger. Interestingly, no stable collaborative arrangements exist when the two manufacturers are nearly equal in market power.
    Date: 2024–01
  7. By: Dodini, Samuel (Norwegian School of Economics); Stansbury, Anna (MIT); Willén, Alexander (Norwegian School of Economics)
    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: J51 J30 D22 J42
    Date: 2023–12
  8. By: De Ridder, Maarten
    Abstract: This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism, and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs, such as software, can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and US micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since the mid-1990s.
    Keywords: productivity; growth; business dynamism; intangible inputs; market power; Centre for Macroeconomics; “Investissements d’Avenir” program (reference: ANR-10-EQPX-1; CASD
    JEL: D20 D24 E23 L11 O31 O47
    Date: 2024–01–01
  9. By: Ariel Burstein; Javier Cravino; Marco Rojas
    Abstract: We leverage a comprehensive dataset of electronic invoices from Chilean firms to document new facts on price dispersion across buyers of the same manufactured intermediate goods. Over half of firm-tofirm sales in manufacturing are accounted for by products that are purchased by more than one buyer in a given month, with prices ranging by 40 percentage points across buyers for the average product. Price dispersion is pervasive across all manufacturing sectors. Observable characteristics of products and of buyer-seller pairs (including distance, mode of payment, and size of the parties and of the transaction) explain only a small fraction of the variance of price gaps in the data. We use a workhorse model of production networks to quantify the productivity gains from eliminating markup dispersion across buyers of individual products, inferring initial differences in markups from observed price gaps. The increase in aggregate productivity relative to the sales share of treated multi-buyer firms ranges from 2 to 7 percent, depending on the calibration of elasticities of substitution. The gains from eliminating markup dispersion across buyers are as large as those of eliminating markup dispersion across products.
    Date: 2024–01
  10. By: Ricardo Marto
    Abstract: Is the recent rise in markups caused by increased monopoly power or is it a natural consequence of structural change? I show that the rise in aggregate markups has been driven by a reallocation of market share away from non-services to services-producing firms and a faster increase of services’ markups. I develop a two-sector model to assess the sources of the rise in markups, in which the two forces of structural change play opposing roles. On one hand, an increase in the relative productivity of manufacturing leads to a decline of the relative price of manufactured goods and to an increase of the goods markups. On the other hand, the increase in incomes that triggers the rise of the services sector leads to higher markups for firms in services. I show that the rise in markups is in line with the rise of the services sector and the fall of the relative price of manufactured goods, and may not necessarily reflect a decline of competition. I provide novel experimental evidence supporting the notion that the price elasticity of demand decreases with income.
    Keywords: endogenous markups; income elasticity of demand; manufacturing; non-homothetic preferences; online experiment; price elasticity of demand; services; skill premium; structural change; survey; technological progress
    JEL: D11 D12 D22 D43 E21 E23 L11 L16 O41 O47
    Date: 2023–11
  11. By: Baum, Leonard; Bryson, Joanna J. (Hertie School)
    Abstract: Growing global concern about the problems associated with concentrated market power in the digital economy is leading to a renewed interest in competition policy. Since the late 2010s, China’s government in particular has squarely confronted the problems of its own ‘Big Tech’ with a new competition regime for digital markets. Outcomes represent a unique learning opportunity for Western academics, competition authorities and lawmakers alike, which has so far been underutilized. However, given unreliable official figures, a new methodology is needed to assess the competitive dynamics of China’s digital economy. This article introduces a market capitalization approach that builds on the informativeness of China’s financial markets. We use Bloomberg financial data of 1142 publicly listed firms for the period 2019 to 2022 to identify 16 digital markets. We find that China’s new competition regime has reduced market concentration and aggregate growth in the primary markets of its three most dominant digital platforms – Baidu, Alibaba and Tencent (BATs). Further, our results show a robust correlation between the new regulatory approach and reduced market concentration and market capitalization growth rates across China’s digital markets. Other empirical findings include a negative correlation between market concentration and the openness of digital markets, a non-relationship between market concentration and profits, and the inability of profit and revenue-based metrics to capture market power effectively in China’s digital economy.
    Date: 2024–01–14
  12. By: Steffen, Nico; Kroon, Peter; Abbasi, Faisal Aman; Wiewiorra, Lukas
    Abstract: Digital platforms and data-driven business models have become integral to today's internet economy. Large technology companies like Apple, Google, Amazon and Microsoft exert control over access to online content, products, services and social interactions through their digital ecosystems and associated gatekeeping power. Within these ecosystems, mobile platforms centred around smartphones, operating systems and app stores play an increasingly pivotal role. The recent introduction of the Digital Markets Act (DMA) by the European Union represents a significant development in the regulation of digital platforms and mobile ecosystems. By imposing rules aimed at promoting competition and fair access, the DMA directly motivates an examination of access considerations and pricing structures surrounding digital platforms and app stores. This research report provides an in-depth analysis of the various access modes and stages relevant to apps within dominant digital ecosystems, exploring appropriate remuneration approaches.
    Keywords: Digitale Plattform, Mobile Anwendung, Electronic Commerce, Monopol, Netzregulierung, EU-Staaten
    Date: 2023
  13. By: Niederprüm, Antonia; Junk, Petra
    Abstract: Der Briefmarkt in Deutschland ist, wie in den meisten Ländern, durch einen strukturellen Rückgang der Briefmengen geprägt. Zwischen 2010 und 2022 sind die Mengen um mehr als ein Viertel zurückgegangen, im Durchschnitt um 2, 6% pro Jahr. Die Wettbewerber konnten trotz des strukturellen Nachfragerückgangs sowohl bei Sendungen als auch bei Umsätzen ihren Marktanteil von 14-15% nach Menge und Umsatz halten. Die aggregierten Briefmarktdaten vermitteln nur ein oberflächliches Bild über die tatsächlichen Entwicklungen im deutschen Briefmarkt und die Vielfalt der im Markt aktiven Zustelldienstleister. In diesem Diskussionsbeitrag wird der Zustellwettbewerb im deutschen Briefmarkt aus dem Blickwinkel der Preis- und Qualitätsstrategien sowohl der Wettbewerber als auch der Deutschen Post untersucht. Es wird erörtert, wie sich der Zustellwettbewerb zusammensetzt, vor welchen Herausforderungen die Wettbewerber stehen und welche Preis- und Qualitätsstrategie die marktbeherrschende Deutsche Post verfolgt hat und in Zukunft verfolgen könnte. Basierend auf diesen Analysen und in Ergänzung mit relevanten geplanten Änderungen des Regulierungsrahmens wird ein Ausblick über die Zukunft des Zustellwettbewerbs in Deutschland gegeben.
    Abstract: As in many other countries, the German letter market has experienced a structural decline in letter volumes. Between 2010 and 2022, volumes decreased by over a quarter, averaging a 2.6% annual decline. Despite the decrease in demand, competitors have managed to maintain their market share of 14-15% in terms of both mailings and revenue. The letter market data only provides a superficial overview of the developments in the German letter market and the diversity of service providers. This discussion paper analyses the end-to-end competition in the German letter market from the perspective of price and quality strategies of competitors and the incumbent Deutsche Post. We discuss the composition of delivery competition, the challenges faced by competitors, and the price and quality strategy pursued by the market-dominant Deutsche Post, as well as potential future strategies. The analysis is used to provide an outlook on the future of end-to-end competition in Germany, also considering relevant planned changes to the regulatory framework.
    Date: 2023
  14. By: Niccolò Galli; Igor Nikolic; Marco Botta
    Abstract: On 27th April 2023, the European Commission published a proposal for a Regulation on Standard Essential Patents (hereinafter, SEPs Regulation) and allowed the public to provide feedback. The Centre for a Digital Society (CDS) of the European University Institute (EUI) is thankful for the opportunity to offer its comments and make suggestions on the proposed Regulation. Our team of researchers has significant research, policy and training experience in the areas of intellectual property, telecommunications regulation, standardisation and EU competition policy. In this Position Statement, we caution against adopting the proposed SEPs Regulation in its current form and suggest adopting guidance under Arts. 101 and 102 TFEU to clarify how SEP licensing should occur not to breach EU competition law. In the sub-optimal scenario where EU institutions would continue to pursue an immediate regulatory intervention, we provide substantial suggestions in an attempt to improve the current proposal of SEPs Regulation and limit certain negative consequences. Our constructive criticism aims to be a catalyst for the debate in the legislative process about the appropriate SEP licensing framework.
    Keywords: Patents, SEP, FRAND, standards, innovation, regulation
    Date: 2023–08
  15. By: Nicolas Ameye; Jacques Bughin; Nicolas van Zeebroeck
    Abstract: This paper studies the diffusion of artificial intelligence (AI) within firms, from exploration to local adoption to full-scale exploitation. The optimal timing of technology adoption represents a balance between preempting the risk of competition and time needed to acquire necessary complements, to ensure a successful return on investment. We formulate and test the idea that this balance changes along the adoption curve from experimentation to exploitation. We first model the decision of a firm facing Cournot competition to explore then exploit AI and assess the role of a variety of internal complements (technological and organizational) as well as competitive rivalry in these processes. Based on this theoretical model, a reduced form model of internal diffusion of AI is then estimated. Three results emerge: (1) rivalry triggers a competitive technology race that prevails in the exploitation more than in the exploration phase; (2) direct AI complements (such as machine learning) favor both adoption and exploitation, while indirect complements (such as cloud and big data) matter more for the experimentation than for the exploitation phase; (3) organizational complements are important for exploiting AI at scale, while technological ones drive exploration and adoption more than exploitation.
    Keywords: Artificial Intelligence, Adoption, Exploitation, Diffusion, Competition, Complements
    Date: 2024–01
  16. By: Luria, Michal; Nicholas, Gabriel
    Abstract: In a wide range of industries, policymakers have considered encouraging or mandating data interoperability to facilitate more entrants and promote competition and innovation. However, some incumbents in these industries argue that interoperability would entrench existing technological design and stifle innovation. In this paper, we attempt to better understand the relationship between interoperability and innovation by looking at the case study of podcasting and the innovation that has emerged across its ecosystem. We analyze nine podcasting apps, six podcast hosting services, and five podcast directories to catalog the novel features each offers. We then organize those features, from those that best facilitate the movement of data between systems (interoperable) to those that most impede that movement (anti-interoperable).
    Date: 2023–12–07
  17. By: Fabio Pieri; Massimiliano Vatiero
    Abstract: This paper investigates the role of the market for knowledge in shaping firm hierarchy—that is, the span of control and the number of layers. We predict that, the larger the extent of the market for knowledge, the larger the span of control and the fewer the layers. We test our predictions using a rich database representing industrial firms in Italy during 2005-2018. Our identification strategy is based on existing cross-regional and cross-industry heterogeneity within the extent of the market for business services’ providers and instrumental variables. Results confirm that firms are flatter as the regional market for knowledge expands.
    Keywords: firm hierarchy, number of layers, span of control, market for knowledge
    JEL: D21 D22 D23 L22 L23
  18. By: Bailey, Ralph W. (Department of Economics, University of Birmingham); Kozlovskaya, Maria (Economics, Finance and Entrepreneurship Department, Aston Business School); Ray, Indrajit (Cardiff Business School)
    Abstract: We analyse the conditions for a strategy profile to be an equilibrium in a specific buy and sell strategic market game, with two goods, using best responses of a player against random bids from the opponents. The difficulty in characterising mixed Nash equilbria is that the expected utility is not quasiconcave in strategies. We still prove that any mixed strategy Nash equilibrium profile in which every player faces only two random bids is trivial, that is, is a convex combination of some pure strategy Nash equilibria; moreover, we show that the outcome (the price and the allocations) is deterministic in such an equilibrium.
    Keywords: Mixed bids ; Mixed strategy Nash equilibrium ; strategic market games JEL codes: C72
    Date: 2023
  19. By: Briskar, Juraj (LSE); di Porto, Edoardo (University of Naples Federico II); Rodriguez Mora, José V. (University of Edinburgh); Tealdi, Cristina (Heriot-Watt University, Edinburgh)
    Abstract: We analyse thirty years of Italian private sector employment data (1985-2018) to study the dynamics of rising earnings inequality. The total variance surged by 10 log points, with 55% occurring between industries, particularly in a few low-paid service sectors. Workers with low earnings ability showed increased likelihood of working in industries with low average firm premium (sorting) together with other low-earning workers (segregation). Strikingly, parallels with the US emerge. In both, inequality increased predominantly between industries and concentrated within a small number of sectors. Italy's increase primarily stems from low-paying sectors, diverging from the more balanced growth observed in the US across high-paying and low-paying industries. Our findings suggest that despite institutional differences similar underlying forces are at work.
    Keywords: earnings inequality, industries, sorting, segregation
    JEL: E02 E25 J01
    Date: 2023–12
  20. By: Fiona M. Scott Morton
    Abstract: Business users are needed to help create useful interfaces, while useful interfaces are needed to justify investment and entry by business users.
    Date: 2024–01

This nep-com issue is ©2024 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.