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on Industrial Competition |
| By: | Hemant Bhargava; Antoine Dubus; David Ronayne; Shiva Shekhar |
| Abstract: | Large, generalist, technology firms—so-called “big-tech” firms—powerful in their primary market, routinely enter secondary markets consisting of specialist firms. Naturally, one might expect a specialist firm to be fiercely protective of its data as a way to maintain its market position in the secondary market. Counter to this intuition, we demonstrate that a specialist firm willingly shares its market data with an intruding tech generalist. We do so by developing a model of cross-market competition in which data collected via consumer usage in each market is a factor of product quality in both markets. We show that a specialist firm shares its data to strategically create co-dependence between the two firms, thereby softening competition and transforming the generalist firm from a traditional competitor into a co-opetitor. For the generalist intruder, data from the specialist firm substitute for its own investments in product quality in the secondary market. As such, the act of sharing data makes the intruder a stakeholder in the valuable data collected by the specialist, and consequently in the specialist’s continued success. Moreover, while the firms benefit from data sharing, consumers can be worse off from the weaker price competition and lower investments in innovation. Our results have managerial and policy implications, notably on account of backlash against data collection and the market power of big tech firms. |
| Keywords: | data-driven quality improvements, externalities, co-opetition, data sharing |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10963&r=com |
| By: | Jay Pil Choi (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); Doh-Shin Jeon (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) |
| Abstract: | We investigate how platform market power affects platforms' design choices in ad-funded two-sided markets, where platforms may find it optimal to charge zero price on the consumer side and extract surplus on the advertising side. We consider design choices affecting both sides in opposite ways and compare private incentives with social incentives. Platforms' design biases depend crucially on whether they can charge any price on the consumer side. We apply the framework to technology adoption, privacy, and ad load choices. Our results provide a rationale for a tougher competition policy to curb market power of ad-funded platforms with free services. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04470490&r=com |
| By: | Qiuyu Lu; Noriaki Matsushima; Shiva Shekhar |
| Abstract: | This study explores the welfare impact of personalized pricing for consumers in a duopolistic two-sided market, with consumers single-homing and developers affiliating with a platform according to their outside option. Personalized pricing, which is private in nature, cannot influence expectations regarding the network sizes, inducing the platforms to offer lower participation fees for developers. Those lower fees increase network benefits for consumers, allowing the platforms to exploit these benefits through personalized pricing. Personalized prices are higher when the network value for developers is high, benefiting competing platforms at the expense of consumers. These findings offer policy insights on personalized pricing. |
| Keywords: | personalized pricing, uniform prices, two-sided market, content developers |
| JEL: | L13 D43 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10994&r=com |
| By: | Eric Langlais; Andreea Cosnita-Langlais; Tim Friehe |
| Abstract: | This paper shows how product liability rules influence merger incentives. Consumers’ misperception of product risk critically influences which liability rule induces the strongest merger incentives. When consumers overestimate product risk, merger incentives under negligence and strict liability are similar and weaker than under no liability. When consumers underestimate product risk, merger incentives under negligence are weaker than those under strict liability but stronger than those under no liability. |
| Keywords: | Liability; Merger; Cournot; Market Structure |
| JEL: | K13 L13 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2024-10&r=com |
| By: | Bantle, Melissa |
| Abstract: | The paper uses a machine learning technique to build up a screen for collusive behavior. Such tools can be applied by competition authorities but also by companies to screen the behavior of their suppliers. The method is applied to the German retail gasoline market to detect anomalous behavior in the price setting of the filling stations. Therefore, the algorithm identifies anomalies in the data-generating process. The results show that various anomalies can be detected with this method. These anomalies in the price setting behavior are then discussed with respect to their implications for the competitiveness of the market. |
| Keywords: | Machine Learning, Cartel Screens, Fuel Retail Market |
| JEL: | C53 K21 L44 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hohdps:285380&r=com |
| By: | Diakoulakis, Giorgos N. |
| Abstract: | In this article, we theoretically explore monopolistic pricing when a (representative) consumer exhibits multiple goals. |
| Keywords: | monopolistic firm, personalized pricing, goal-driven consumers |
| JEL: | D42 D90 D21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:284924&r=com |
| By: | Henrik Andersen; Ragnar E Juelsrud; Carola Müller |
| Abstract: | We use unique relationship-level data which includes banks' private risk assessments of corporate borrowers to quantify how competition among banks affects the risk sensitivity of interest rates in the corporate credit market. We show that an increase in competition makes corporate lending rates less sensitive to banks' own assessment of borrower probability of default and this is more pronounced in market segments with higher degree of asymmetric information. Our results are driven by banks with low franchise values, outlining a novel channel of how the competition-fragility nexus can operate. |
| Keywords: | banking competition, relationship lending, credit markets, risk-based pricing, financial stability |
| JEL: | G21 G28 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1169&r=com |
| By: | Pak Hung Au; Mark Whitmeyer |
| Abstract: | We study the ramifications of increased commitment power for information provision in an oligopolistic market with search frictions. Although prices are posted and, therefore, guide search, if firms cannot commit to information provision policies, there is no active search at equilibrium so consumers visit (and purchase from) at most one firm. If firms can guide search by both their prices and information policies, there exists a unique symmetric equilibrium exhibiting price dispersion and active search. Nevertheless, when the market is thin, consumers prefer the former case, which features intense price competition. Firms always prefer the latter. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.11754&r=com |
| By: | Nicoletta Berardi |
| Abstract: | Working Paper Series no. 942. This paper investigates the interaction between financial constraints faced by firms and their price setting behaviour. We find systematic differences in the frequencies of price increases and decreases between financially constrained and unconstrained firms, consistently across several alternative proxies. Financial constraints affect price adjustments asymmetrically. When firms are financially struggling, they are more likely to increase their prices, while simultaneously exhibiting greater rigidity in lowering prices. |
| Keywords: | Producer Price Setting, Firm Financial Constraints, Customer Market |
| JEL: | E31 G30 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:942&r=com |
| By: | Sukjin Han; Hiroaki Kaido; Lorenzo Magnolfi |
| Abstract: | A key primitive of a strategic environment is the information available to players. Specifying a priori an information structure is often difficult for empirical researchers. We develop a test of information ordering that allows researchers to examine if the true information structure is at least as informative as a proposed baseline. We construct a computationally tractable test statistic by utilizing the notion of Bayes Correlated Equilibrium (BCE) to translate the ordering of information structures into an ordering of functions. We apply our test to examine whether hubs provide informational advantages to certain airlines in addition to market power. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.19425&r=com |
| By: | Andres, Raphaela; Rossi, Michelangelo; Tremblay, Mark |
| Abstract: | In the past decade, the Creator Economy has witnessed unprecedented growth. This dynamic ecosystem thrives on a multi-sided business model, connecting content creators, users, and advertisers. However, matching the needs of different stakeholders is a complex challenge, as evidenced by the impact of the YouTube 'Adpocalypse' in 2017, when major advertisers fled Youtube due to concerns about their ads appearing alongside objectionable content. This paper explores the response by content creators that use both Youtube and Patreon to YouTube's content moderation policies following the 'Adpocalypse'. We find that these content creators shift their efforts toward Patreon which uses a subscription fee model instead of an ad-based model; as a result, consumers subsequently increase their use of Patreon through memberships, comments, and likes. However, we also find that Youtube's content moderation, and the shift by content creators and consumers that follows, results in an increase in toxicity on Patreon. |
| Keywords: | Patreon, Platform Competition, Multi-homing, Content Creators |
| JEL: | L10 L20 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:283579&r=com |
| By: | Francesca Barigozzi (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna); Helmuth Cremer (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) |
| Abstract: | We study how workers' concern for coworkers' ability (CfCA) affects competition in the labor market. Two firms offer nonlinear contracts to a unit mass of prospective workers. Firms may differ in their marginal productivity, while workers are heterogeneous in their ability (high or low) and their taste for being employed by any of the two firms. Workers receive a utility premium when employed by the firm hiring most high-ability workers and suffer a utility loss if hired by its competitor. These premiums/losses are endogenously determined. We characterize contracts and workers' sorting into the two firms under complete and private information on workers' ability. We show that CfCA is detrimental to firms, but it benefits high-ability workers, especially when their ability is observable. In addition, CfCA exacerbates the existing distortion in high-ability workers' sorting into the two firms. |
| Keywords: | Concern for coworkers’ quality, Competition, Screening, Sorting |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04454311&r=com |
| By: | Stephan Lauermann (The University of Bonn, Department of Economics); Asher Wolinsky (Northwestern University, Department of Economics) |
| Abstract: | Auction models are convenient abstractions of informal price-formation processes that arise in markets for assets or services. These processes involve frictions such as bidder recruitment costs for sellers, participation costs for bidders, and limitations on sellers' commitment abilities. This paper develops an auction model that captures such frictions. We derive several novel predictions; in particular, we find that outcomes are often inefficient, and the market sometimes unravels. |
| Keywords: | Auctions |
| JEL: | D44 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:288&r=com |
| By: | Tomohiro AraAuthor-Name: Jun Nagayasu |
| Abstract: | How does an increase in tariff on intermediate input affect different margins of trade and what in turn are consequences for optimal tariff? We address this question in a setting with vertical specialization where oligopolistic, downstream Home firms procure input from perfectly competitive, Foreign upstream firms. Our key focus is to understand how Home optimal tariff departs from the competitive benchmark (inverse of foreign export supply elasticity). While underproduction in oligopoly puts a downward pressure on tariff, welfare improvement arising from rationalization (in presence of entry) and possible reallocation (in presence of cost heterogeneity) can put an upward pressure on tariff. Hence, in general, optimal tariff can be higher or lower than the competitive benchmark. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:47&r=com |
| By: | Goerlach, Joseph-Simon (Bocconi University); Motz, Nicolas (Universidad Complutense de Madrid) |
| Abstract: | Despite recent advances, no general methods for computing bargaining power in non-cooperative games exist. We propose a number of axioms such a measure should satisfy and show that they characterise a unique function. The principle underlying this measure is that the influence of a player can be assessed according to how much changes in this player's preferences affect outcomes. Considering specific classes of games, our approach nests existing measures of power. We present applications to cartel formation, the non- cooperative model of the household, and legislative bargaining. |
| Keywords: | bargaining power, non-cooperative games |
| JEL: | C72 C78 D01 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16809&r=com |
| By: | Brian C. Albrecht; Ryan A. Decker |
| Abstract: | In recent decades, various measures of “business dynamism”—such as new business entry rates and gross job or worker flows—have seen significant declines in the U.S.. Over a similar time frame, there is evidence that an important measure of market power—the average markup—has risen significantly (figure 1, left panel; De Loecker, Eeckhout, and Unger 2020). A natural question is whether these patterns are related. |
| Date: | 2024–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2024-03-08-2&r=com |
| By: | Tomohiro Ara |
| Abstract: | What is the effect of tariffs on the input trade margins when vertically related markets are oligopolistic? To address the question, this paper develops a vertical oligopoly model in which one country specializes in producing a final good while another country specializes in producing an intermediate good by taking into account strategic interactions among firms. We find that, for constant-elasticity demand, a tariff reduction increases the number of trading firms (extensive margin) and average trade value per firm (intensive margin) in the vertically related sectors, raising the intensive margin relative to the extensive margin. To assess the empirical relevance of our theoretical results, we focus on China's WTO accession which was a large policy change to Chinese firms. We find that a tariff reduction significantcantly increases both margins in the post-WTO period, though the effect on the extensive margin is much smaller than that on the intensive margin. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:46&r=com |
| By: | Sezer, Ayse Hazal (Tilburg University, School of Economics and Management); Uras, Burak (Tilburg University, School of Economics and Management) |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:81a58c37-dd82-442d-aab1-b27f70a22ba1&r=com |