nep-com New Economics Papers
on Industrial Competition
Issue of 2024‒02‒19
eleven papers chosen by
Russell Pittman, United States Department of Justice

  1. The Dynamics of Product and Labor Market Power: Evidence from Lithuania By Ziran Ding; Jose Garcia-Louzao; Valentin Jouvanceau
  2. How Do Firms Respond to Unions? By Samuel Dodini; Anna Stansbury; Alexander Willén; Alexander L.P. Willén
  3. Immigration, Monopsony and the Distribution of Firm Pay By Amior, Michael; Stuhler, Jan
  4. Labour market power: New evidence on Non-Compete Agreements and the effects of M&A in the UK By Julian Alves; Jason Greenberg; Yaxin Guo; Ravija Harjai; Bruno Serra; John Van Reenen
  5. Do larger firms exert more market power? Markups and markdowns along the size distribution By Mertens, Matthias; Mottironi, Bernardo
  6. The Horizontal Merger Efficiency Fallacy By Mark Glick; Gabriel A. Lozada; Pavitra Govindan; Darren Bush
  7. Reassessing the Effects of Corporate Income Taxes on Mergers and Acquisitions Using Empirical Advances in the Gravity Literature By Sebastien Bradley; Federico Carril-Caccia; Yoto V. Yotov
  8. Entry and competition in mobile app stores By Fiona M. Scott Morton
  9. Market competition and the adoption of clean technology: evidence from the taxi industry. By Raúl Bajo-Buenestado, Miguel à ngel Borrella Mas
  10. Interchange fees, access pricing and sub-acquirers in payment markets By Jose Aurazo
  11. An empirical model of fleet modernization: on the relationship between market concentration and innovation adoption in the Brazilian airline industry By Alessandro V. M. Oliveira; Thiago Caliari; Rodolfo R. Narcizo

  1. By: Ziran Ding; Jose Garcia-Louzao; Valentin Jouvanceau
    Abstract: This paper characterizes the power dynamics of firms in both product and labor markets in Lithuania between 2004 and 2018. We first show that both markets are not perfectly competitive, as both price markups and wage markdowns are far from unitary and homogeneous. Interestingly, we unveil that the dynamics of these margins followed different patterns. On the one hand, both the dispersion and the economy-wide markup have increased, indicative of an increase in product market power. On the other hand, we document a decline in monopsony power, as both the heterogeneity and the aggregate level of markdowns have declined. Altogether, our results underline the importance of jointly analyzing product and labor markets when assessing firms’ market power.
    Keywords: firm heterogeneity, monopoly, markups, monopsony, markdowns
    JEL: D40 E20 J30 L10
    Date: 2024
  2. By: Samuel Dodini; Anna Stansbury; Alexander Willén; Alexander L.P. Willén
    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
  3. By: Amior, Michael (Hebrew University, Jerusalem); Stuhler, Jan (Universidad Carlos III de Madrid)
    Abstract: We argue that the arrival of immigrants with low reservation wages can strengthen the monopsony power of firms. Firms can exploit "cheap" migrant labor by offering lower wages, though at the cost of forgoing potential native hires who demand higher wages. This monopsonistic trade-off can lead to large negative effects on native employment, which exceed those in competitive models, and which are concentrated among low-paying firms. To validate these predictions, we study changes in wage premia and employment across the firm pay distribution, during a large immigration wave in Germany. These adverse effects are not inevitable, and may be ameliorated through policies which constrain firms' monopsony power over migrants.
    Keywords: immigration, monopsony, firms
    JEL: J31 J42 J61 J64 J11
    Date: 2023–12
  4. By: Julian Alves; Jason Greenberg; Yaxin Guo; Ravija Harjai; Bruno Serra; John Van Reenen
    Abstract: Monopsony power is an important feature of modern labour markets. We examine its impact on workers. We report the first representative survey of Non-Compete-Agreements (NCA) in the UK and find that about 26% of workers appear to be covered, a higher fraction than in comparable surveys in the US (18%) and Italy (16%). Although NCAs are more prevalent for skilled workers, a large number of low skilled workers are also subject to NCAs (e.g. over a fifth of plant operators). Moreover, although NCAs are associated with higher training (conditional on other measures of skills), we argue that such benefits are unlikely to justify their high prevalence. Finally, we examine the impact of over 2, 000 M& UK panel data between 1997 and 2022 (over 900, 000 observations). The data suggests that M&A tends to reduce employment growth in the merged entity (from 3% a year prior to the merger to about zero in the subsequent five years), particularly in target firms. However, there is no evidence of any falls in average wage growth (in acquirer or target) as monopsony would predict - if anything, average wages are higher. Nor does profitability or productivity change post-merger.
    Keywords: management practices, productivity, competition
    Date: 2024–01–29
  5. By: Mertens, Matthias; Mottironi, Bernardo
    Abstract: Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework.
    Keywords: markups; markdowns; market power; firm size
    JEL: L11 L13 L25 J42
    Date: 2023–09–21
  6. By: Mark Glick (University of Utah); Gabriel A. Lozada (University of Utah); Pavitra Govindan (University of Utah); Darren Bush (University of Houston Law Center)
    Abstract: The Department of Justice and Federal Trade Commission Merger Guidelines (the "Merger Guidelines"), including the much improved latest revision in 2023 (the "New Merger Guidelines"), have continued to perpetrate what we call in this paper the horizontal merger efficiency fallacy. The fallacy arises because in the Guidelines the term "efficiencies" has become unmoored from its foundations in economic theory and has been reduced to the business school construct of cost savings. We show that cost savings can only be considered universally socially beneficial by acceptance of what is termed "the Consumer Welfare Standard" (antitrust) or "the surplus theory of welfare" (economics), a theory that has been discredited and abandoned by welfare economists. In economic theory, efficiency means Pareto Efficiency. We explore the various attempts to tether the cost savings definition of efficiency to Pareto Efficiency and explain why these attempts have failed. We conclude that there is no sound way to theoretically reconcile cost savings with the economic meaning of efficiencies. We then move beyond the efficiency fallacy and show how modern welfare economics can be used to integrate Congressional antitrust goals into the New Merger Guidelines. This requires abandoning the unsupported "standard deduction" for efficiencies and replacing it with an evidence-based assessment of how a specific merger under review potentially impacts Congressional antitrust goals. This change renders the present efficiency rebuttal section of the New Merger Guidelines superfluous, and we provide specific reasons why this section as currently drafted is flawed and should be jettisoned.
    Keywords: Antitrust, Efficiency, Consumer Welfare, Merger Regulation, Merger Guidelines
    JEL: D4 D6 L4 L5
    Date: 2023–08–24
  7. By: Sebastien Bradley; Federico Carril-Caccia; Yoto V. Yotov
    Abstract: We study the relationship between corporate income taxes and mergers and acquisitions (M&As). To this end, we compile and deploy a dataset consisting of all cross-border and domestic M&A deals for 118 source (acquirer) and 122 destination (target) countries and 84 sectors over the period 1995-2019. From a methodological perspective, we implement leading methods from the empirical gravity literature on trade, foreign direct investment, and migration, and we demonstrate their importance for estimating the impact of corporate income taxes on cross-border versus domestic M&A activity. Our main finding is that a one percentage point increase in target country corporate income tax rates decreases the number of cross-border acquisitions by about 0.8 percent relative to domestic M&As. This result is robust to various sensitivity checks and is comparable to previously published estimates. Nevertheless, our stepwise estimation strategy exemplifies the importance of individual empirical refinements. These should serve as the basis for future work investigating the effects of taxation on bilateral flows.
    Keywords: corporate income taxes, mergers and acquisitions, gravity methods
    JEL: F10 F14 F21 F23 H25 H87
    Date: 2023
  8. By: Fiona M. Scott Morton
    Abstract: The DMA raises tantalising opportunities for app stores innovation, making it the most exciting area of digital regulation.
    Date: 2024–01
  9. By: Raúl Bajo-Buenestado, Miguel à ngel Borrella Mas
    Keywords: Technological change, Green technology adoption, Market competition, Diffusion of technology, Environmental externalities.
    JEL: D22 K32 L20 Q55 R11
    Date: 2023–11
  10. By: Jose Aurazo
    Abstract: Sub-acquirers, also known as payment facilitators, have played a vital role in fostering merchant digital payments acceptance, particularly in developing countries. To provide access to digital payments (ie card acceptance) to merchants, sub-acquirers do not have a direct connection with the card network but through the acquirer. This paper aims to study the optimal pricing in the payments industry when: i) the sub-acquirers and acquirers compete in the same downstream market, and ii) the sub-acquirers enter niche markets that are not covered yet (eg micro and small-sized merchants). In the first scenario, a conflict arises as the acquirer might have incentives to deter entry by charging prohibitive access fees. In the second scenario, the acquirer obtains an extra profit from granting access to the card network for the sub-acquirers, and welfare increases. That said, the regulator can play a relevant role in the first scenario by setting an access fee to allow socially but not privately desirable entry.
    Keywords: access pricing, interchange fees, payment cards, payment facilitators, two-sided markets
    JEL: G21 L11 L4 L5
    Date: 2024–01
  11. By: Alessandro V. M. Oliveira; Thiago Caliari; Rodolfo R. Narcizo
    Abstract: The modernization of an airline's fleet can reduce its operating costs, improve the perceived quality of service offered to passengers, and mitigate emissions. The present paper investigates the market incentives that airlines have to adopt technological innovation from manufacturers by acquiring new generation aircraft. We develop an econometric model of fleet modernization in the Brazilian commercial aviation over two decades. We examine the hypothesis of an inverted-U relationship between market concentration and fleet modernization and find evidence that both the extremes of competition and concentration may inhibit innovation adoption by carriers. We find limited evidence associating either hubbing activity or low-cost carriers with the more intense introduction of new types of aircraft models and variants in the industry. Finally, our results suggest that energy cost rises may provoke boosts in fleet modernization in the long term, with carriers possibly targeting more eco-efficient operations up to two years after an upsurge in fuel price.
    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.