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on Industrial Competition |
| By: | Qazi Haque; Oscar Pavlov; Mark Weder |
| Abstract: | The rise of market power in the last decades is primarily driven by the largest firms. We propose a theory of these superstar firms in which their technology involves the ability to produce multiple products. Superstars interact with smaller competitors and market share reallocations and product creation generate heterogeneous markup dynamics across firms. Higher market shares of superstars increase the parameter space for macroeconomic indeterminacy. Bayesian estimation of the general equilibrium model suggests the importance of the endogenous amplification of the product creation channel and animal spirits play a non-trivial role in driving U.S. business cycles. |
| Keywords: | superstars, multi-product firms, business cycles, animal spirits, Bayesian estimation |
| JEL: | E32 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2024-15&r=com |
| By: | Itai Arieli; Yakov Babichenko; Omer Madmon; Moshe Tennenholtz |
| Abstract: | We consider a model of third-degree price discrimination, in which the seller has a valuation for the product which is unknown to the market designer, who aims to maximize the buyers' surplus by revealing information regarding the buyer's valuation to the seller. Our main result shows that the regret is bounded by $U^*(0)/e$, where $U^*(0)$ is the optimal buyer surplus in the case where the seller has zero valuation for the product. This bound is attained by randomly drawing a seller valuation and applying the segmentation of Bergemann et al. (2015) with respect to the drawn valuation. We show that the $U^*(0)/e$ bound is tight in the case of binary buyer valuation. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.16942&r=com |
| By: | Tania Babina; Saleem A. Bahaj; Greg Buchak; Filippo De Marco; Angus K. Foulis; Will Gornall; Francesco Mazzola; Tong Yu |
| Abstract: | Open banking (OB) empowers bank customers to share transaction data with fintechs and other banks. 49 countries have adopted OB policies. Consumer trust in fintechs predicts OB policy adoption and adoption spurs investment in fintechs. UK microdata shows that OB enables: i) consumers to access both financial advice and credit; ii) SMEs to establish new fintech lending relationships. In a calibrated model, OB universally improves welfare through entry and product improvements when used for advice. When used for credit, OB promotes entry and competition by reducing adverse selection, but higher prices for costlier or privacy-conscious consumers partially offset these benefits. |
| JEL: | G21 G23 G24 G28 G5 G50 K21 L10 L51 O31 O36 O38 O50 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32089&r=com |
| By: | Russell Cooper; John C. Haltiwanger; Jonathan Willis |
| Abstract: | This paper studies competing sources of declining dynamism. Evidence shows that an important component of this decline is accounted for by the reduction in the response of employment to shocks in US establishments. Using a plant level dynamic optimization problem as a framework for analysis, four potential reasons for this decline are studied: (i) a change in exogenous processes for profits, (ii) an increase in impatience, (iii) increased market power and (iv) increasing adjustment costs. We identify and quantity the contribution of each of these factors building on a simulated method of moments estimation of our structural model. Our results indicate that the reduction in responsiveness largely reflects increased costs of employment adjustment. Changes in market power, as captured by changes in the curvature of the revenue, function play a minimal role. But, in the presence of rising adjustment costs, measured sales-weighted markups using the recently popular indirect production approach rise substantially, along with rising dispersion and skewness of such measured markups. |
| JEL: | E20 J63 L23 O44 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32130&r=com |
| By: | Dionne, Georges (HEC Montreal, Canada Research Chair in Risk Management); Fenou, Akouété (HEC Montreal, Canada Research Chair in Risk Management); Mnasri, Mohamed (HEC Montreal, Canada Research Chair in Risk Management) |
| Abstract: | We investigate the causes of the gap in mergers and acquisitions (M&A) between life and nonlife insurers in the US from 1990 to 2022. Our DID analysis indicates a parallel trend between M&As in the life insurance and nonlife insurance sectors from 1990 to 2012, and a significant difference after 2012. There was a shock in the life insurance market that resulted in a reduction in M&As after 2012. Variable annuity sales in the life insurance sector declined after 2012. We find evidence that low interest rates observed during the implementation of the quantitative easing policy of the Fed from 2008 to 2012 caused the difference in M&As in the life sector after 2012. |
| Keywords: | Merger and acquisition; life insurance; nonlife insurance; US insurance market; DID methodology; quantitative easing policy; life insurance annuity; variable annuity |
| JEL: | C21 D40 D80 G14 G22 G34 |
| Date: | 2024–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:ris:crcrmw:2024_002&r=com |
| By: | Jan Malek; Melissa Newham; Jo Seldeslachts; Reinhilde Veugelers |
| Abstract: | This paper analyzes M&A patterns of R&D projects in the antidiabetics industry. For this purpose, we construct a database with all corporate individual antidiabetics R&D projects over the period 1997 - 2017, and add detailed information on firms’ technology dimension using patent information, next to their position in product markets. This allows us to identify the identity of targets and acquirers (who), the timing of acquisitions along the R&D process (when), and which type of R&D projects changes hands in terms of technology novelty (what). The main results can be summarized as follows. First, most of the action in M&As is in early R&D stages, still far from product markets. Second, most of the early-stage projects that change hands are high-risk/high-gain novel projects. Third, the industry leaders in the product markets are rather inactive in acquiring those novel early-stage projects. The likely acquirers of such projects are small or pipeline firms. Our results put in perspective the narrative that large incumbents acquire small targets with low-risk projects close to product launch. |
| Keywords: | M&As, innovation, R&D, pharmaceutics, technology, novelty, patents |
| Date: | 2024–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:ete:msiper:735739&r=com |
| By: | Robert Minton; Casey B. Mulligan |
| Abstract: | Price theory says that the most important effects of policy and technological change are often found beyond their first point of contact. This appears opposed to econometric methods that rule out spillovers of one person’s treatment on another’s outcomes. This paper uses the industry model from price theory to represent the statistical concepts of treatments and controls. When treated and control observations are in the same market, the controls are indirectly affected by the treatment. Moreover, even the effect of the treatment on the treated reveals only part of the consequence for the treated of treating the entire market, which is often the parameter of interest. Marshall’s Laws of Derived Demand provide a guide for empirical work: precise price-theoretic interpretations of the direct and spillover effects of a treatment, the quantitative relationships between them, and how they correspond to the scale and substitution effects emphasized in price theory. |
| JEL: | C21 D41 L11 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32111&r=com |
| By: | Francesco Amodio (McGill University); Emanuele Brancati (Sapienza University); Peter Brummond (University of Alabama); Nicolas de Roux (Universidad de Los Andes, Colombia); Michele Di Maio (Sapienza University) |
| Abstract: | We estimate the labor market power of over 13, 000 manufacturing establishments across 82 low and middle-income countries around the world. Within local labor markets, larger and more productive firms have higher wage markdowns and pay lower wages. Labor market power across countries exhibits a mild non-linear relationship with GDP per capita, entirely driven by a strong hump-shaped relationship with the share of self-employed workers. Labor market institutions fully account for the hump shape: in countries with unemployment protection, wage markdowns increase with the share of self-employment while the opposite is true in countries without it. We explain this finding through the lens of a simple oligopsonistic labor market model with frictions. Self-employment prevalence correlates with the elasticity of labor supply to the wage paid, and labor market institutions can change the sign of this relationship. |
| Keywords: | labor market power, self-employment, development, labor market institutions |
| JEL: | J20 J30 J42 L11 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:crm:wpaper:2404&r=com |
| By: | David Rios; Alex Perez; Jaime Carabali; Luis Meneses |
| Abstract: | Estudiamos el efecto de los eventos climáticos adversos sobre los precios minoristas de la electricidad. Nos enfocamos en el caso colombiano dado que este mercado se encuentra hidro-dominado y expuesto al fenómeno de El Niño, el cual provoca una reducción notable del componente hidrológico de la generación de electricidad. Diseñamos un modelo estructural para entender la formación de los precios minoristas. Posteriormente, utilizamos el modelo para estudiar cómo responden los precios a eventos climáticos severos. Los resultados muestran que, cuando no hay presencia de El Niño, las firmas minoristas tienden a traspasar de forma más que completa los choques de costos a los precios. Por otro lado, no encontramos evidencia de que el traspaso difiera cuando hay presencia de El Niño. Esto implica que el efecto de El Niño sobre los precios minoristas corre a través de su efecto sobre los costos mayoristas, exclusivamente. Encontramos evidencia de que los precios minoristas incrementan en presencia de El Niño, debido al incremento de los precios spot en el mercado mayorista de electricidad. **** Abstract We study the effect of adverse weather events on retail electricity prices. We focus on the Colombian case given that this market is hydro-dominated and exposed to the El Niño phenomenon, which causes a notable reduction in the hydrological component of electricity generation. We design a structural model to understand the formation of retail prices. We then use the model to study how prices respond to severe weather events. The results show that, under normal conditions, retail firms have control over the pass-through of wholesale cost shocks to retail prices. However, we do not find evidence that the pass-through differs when El Niño is present. This implies that El Niño’s effect on retail prices runs through its effect on wholesale costs exclusively. We find evidence that retail prices increase in the presence of El Niño, due to the increase in spot prices in the wholesale electricity market. |
| Keywords: | Mercados de electricidad, Precios minoristas, Precios mayoristas, Fenómeno de El Niño, Electricity markets, Retail prices, Wholesale prices, El Niño phenomenon |
| JEL: | D43 Q49 L11 L12 L94 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1266&r=com |
| By: | Di Corato, Luca; Moretto, Michele |
| Abstract: | We consider a long-term contractual relationship in which a buyer procures a fixed quantity of a product from a supplier and then sells it on the market. The production cost is private information and evolves randomly over time. The solution to this dynamic principal-agent problem involves a periodic two-part payment. The fixed part of the payment depends on the initial supplier’s cost type while the other is contingent on the current cost type. A notable feature is that, by using the information about the initial cost type, the buyer can reduce the burden of information rents paid for the revelation of the future cost type. We show that the distortion, resulting from information asymmetry, remains constant over time and decreases with the initial type. Lastly, we show that our analysis immediately applies also when input prices are private information and evolve randomly over time. |
| Keywords: | Demand and Price Analysis, Industrial Organization, Productivity Analysis |
| Date: | 2024–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:340040&r=com |
| By: | MOTOHASHI Kazuyuki; Alireza EMAMI JAVID |
| Abstract: | To develop an innovation ecosystem and maintain a healthy ecosystem through contributions from partners, the ecosystem owner must balance exercising control over the partners and allowing them autonomy in their activities. While a large body of literature discusses the comparative statics of the optimal degree of “control†over “autonomy†, few studies empirically investigate governance model dynamics during ecosystem development. This study sheds new light on this issue using information from the Siemens IoT Platform called MindSphere. Specifically, by measuring the similarity among the partners in terms of their business domain, we constructed an indicator of complementarity among platform participants. We then evaluate Siemens’s platform governance strategy using Burt’s constraint index (measuring structural holes in network data). Siemens changed its governance model from facilitating mutual complementarity among partners in the early stage of platform development to inducing more competition in its later stage using network externality as a centripetal force. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24027&r=com |
| By: | Valérie Mignon; Pauline Bucciarelli; Emmanuel Hache |
| Abstract: | This paper aims to evaluate the criticality of strategic metals by (i) investigating the validity of the Herfindahl-Hirschman Index (HHI) for assessing the supply risk aspect of criticality and (ii) determining an appropriate threshold for using this indicator in the context of criticality studies. Relying on a large panel of 33 strategic metals over the 1995-2021 period, our findings show that the variation of HHI has more impact on metal prices at lower HHI levels and question the existence of a threshold that clearly distinguishes high-risk markets from less risky ones based on their concentration levels. Overall, we show that using the HHI as a supply risk indicator, especially in conjunction with a threshold, may result in underestimating risks in less concentrated markets. |
| Keywords: | Strategic metals; Criticality; Herfindahl–Hirschman Index; Metal prices; Panel regression |
| JEL: | Q02 Q34 C23 C24 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2024-3&r=com |
| By: | De Monte, Enrico |
| Abstract: | This paper investigates the evolution of aggregate productivity and markups among French manufacturing firms between 1994 and 2016, by focusing on the role of reallocation with respect to both aggregate measures. Firm-level productivity and markups are estimated based on a gross output translog production function using popular estimation methods. I find an aggregate productivity growth of about 34% over the whole period while aggregate markups are found to remain relatively stable. As a key finding the study shows that over time reallocation of sales shares affects differently aggregate productivity and markups: Before 2000 both aggregate productivity and markups are importantly driven by reallocation effects; Post-2000, instead, the contribution of reallocation to aggregate productivity becomes negligible, inducing a slowdown in aggregate productivity growth, while I measure persistent reallocation of sales shares from lower to higher markup firms. Policy relevant implications of these dynamics are discussed. |
| Keywords: | productivity decomposition, production function estimation, business dynamism, market power, entry and exit |
| JEL: | C13 D21 D24 L16 L60 O47 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:283014&r=com |