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on Industrial Competition |
| By: | Moez Kilani; André de Palma (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We analyze spatial competition on a circle between firms that have multiple outlets and face quadratic transport costs. The equilibrium is a two-stage Nash game: first, firms decide on their locations and then set their prices. We are able to solve analytically simple multi-outlet cases, but for the general case, we require an algorithm to enumerate all non-isomorphic configurations. While price equilibria are explicit and unique, solving the full two-stage game requires numerical methods. In the location game, we consider two scenarios: either firms cannot jump one outlet over a competitors’ outlet, or firms have the flexibility to locate outlets anywhere on the circle. The solution involves a balance between cannibalization, market protection, and spatial monopoly power. We compare prices, profits, and transport costs for all possible configurations. With flexible locations, the firms’ market areas are contiguous. In this case, surprisingly, each firm acts as a spatial monopoly. If regulations enforce that each firm must set the same price for its outlets, head-to-head competition prevails, leading to decreased profits for the firms but to a better-off situation for consumers. |
| Keywords: | Spatial competition, circle, multi-product oligopoly, price-location equilibria, coin change problem |
| JEL: | L13 R32 R53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2023-18&r=com |
| By: | Martin Peitz |
| Abstract: | This article provides a guide to the world of digital attention intermediaries and concludes with a discussion of several policy issues with a focus on competition policy and consumer protection. It addresses the following questions: How do attention intermediaries operate in the real world? What are economic mechanisms that may contribute to understanding markets with digital attention intermediaries? Recent insights from the economics of platforms and media economics inform the replies to these questions. |
| Keywords: | Attention intermediaries, Two-sided platforms, Advertising, Market power, Digital markets, Limited attention |
| JEL: | L40 L82 L86 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_520&r=com |
| By: | Inkoo Cho; Noah Williams |
| Abstract: | We develop a model of algorithmic pricing that shuts down every channel for explicit or implicit collusion while still generating collusive outcomes. We analyze the dynamics of a duopoly market where both firms use pricing algorithms consisting of a parameterized family of model specifications. The firms update both the parameters and the weights on models to adapt endogenously to market outcomes. We show that the market experiences recurrent episodes where both firms set prices at collusive levels. We analytically characterize the dynamics of the model, using large deviation theory to explain the recurrent episodes of collusive outcomes. Our results show that collusive outcomes may be a recurrent feature of algorithmic environments with complementarities and endogenous adaptation, providing a challenge for competition policy. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.07177&r=com |
| By: | Doron Sayag; Avichai Snir; Daniel Levy |
| Abstract: | The finding of small price changes in many retail price datasets is often viewed as a puzzle. We show that a possible explanation for the presence of small price changes is related to sales volume, an observation that has been overlooked in the existing literature. Analyzing a large retail scanner price dataset that contains information on both prices and sales volume, we find that small price changes are more frequent when products sales volume is high. This finding holds across product categories, within product categories, and for individual products. It is also robust to various sensitivity analyses such as measurement errors, the definition of small price changes, the inclusion of measures of price synchronization, the size of producers, the time horizon used to compute the average sales volume, the revenues, the competition, shoppers characteristics, etc. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.07166&r=com |
| By: | Pinka Chatterji; Chun-Yu Ho; Tao Jin; Yichuan Wang |
| Abstract: | Since the inception of Medicare Part D in 2006, mergers and acquisitions (M&A) and regulatory changes have led to increased concentration and reduced plan variety in the standalone prescription drug plan (PDP) portion of the market. We examine how this industry consolidation affects Medicare beneficiaries’ enrollment in PDPs and their out-of-pocket (OOP) drug expenditures using individual-level data from the 2006-2018 waves of the Health and Retirement Study (HRS) merged with PDP market-level characteristics. Overall, we find that lower plan variety in the PDP market decreases the likelihood that elderly individuals enroll in PDPs, and higher PDP market concentration increases OOP drug expenditures. Our main results are robust to considering possible effects of unobserved individual-level heterogeneity, region-specific time trends, and entry/exit of insurers, as well as to the use of an alternative identification scheme based on a quasi-experimental design. Further, we find that younger, more advantaged, and healthier individuals respond differently to industry consolidation compared to their older, less advantaged, and sicker counterparts. The former groups are more likely to adjust their PDP enrollment in response to reduced PDP variety and have higher OOP drug expenditures in response to increased PDP market concentration compared to the latter groups. Finally, we find that not only do lower PDP variety and greater PDP market concentration directly affect PDP enrollment and OOP drug expenditures, but these changes also affect Medicare beneficiaries indirectly through impacting PDP characteristics. |
| JEL: | I1 I11 I13 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32267&r=com |
| By: | Panle Jia Barwick; Hyuk-Soo Kwon; Shanjun Li |
| Abstract: | Attribute-based subsidies (ABS) are commonly used to promote the diffusion of energy-efficient products, whose manufacturers often wield significant market power. We develop a theoretical framework for the optimal design of ABS to account for endogenous product attributes, environmental externalities, and market power. We then estimate an equilibrium model of China's vehicle market under ABS and conduct counterfactual simulations to evaluate the welfare impacts of various subsidy designs. Compared to the uniform subsidies, ABS lead to higher product quality and are more effective in mitigating quantity distortions, albeit with a modest environmental cost. Between 42% to 62% of welfare gains under ABS relative to uniform subsidies are attributed to more desirable product attributes, with the remainder explained by reductions in market power distortions. Allowing subsidy redistribution through product-level subsidies, as suggested by our theoretical model, further enhances welfare gains by an additional 34% to 62%. Among the ABS designs, China's notched subsidy design based on driving range leads to vehicle downsizing that undermines welfare benefits. Subsidies based on battery capacity, as implemented in the U.S., achieve the highest welfare gains by effectively balancing market power and environmental impacts. |
| JEL: | L13 L52 L62 Q58 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32264&r=com |
| By: | S. Nobili |
| Abstract: | Over the past few decades, there has been a notable increase in firms' market power accompanied by a global decrease in Corporate Income Tax (CIT) rates. This paper provides a theoretical framework to shed light on these diverging trends. I develop a general equilibrium model that incorporates imperfect competition and strategic interaction among firms, allowing them to shift profits abroad towards a tax haven. I find that increasing firms' market power enhances their incentives to engage in profit shifting, via larger profits. Profits rise through (i) larger markdowns and (ii) reallocation of market share towards more productive firms. A government, competing to retain firms' profits, set low tax rates to prevent local firms from evading toward tax haven(s). The competition is stronger, i.e. lower tax rates, when firms' market power is higher. Besides, I find that profit shifting widens the disparities among ex-ante heterogeneous firms and endogenously increases the level of market power in the economy, favouring the most productive firms. |
| Keywords: | L13;H73;H25;F23;E61;D43 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:202406&r=com |
| By: | Yumeng Gu; Sanjay R. Singh |
| Abstract: | We incorporate incumbent innovation in a Keynesian growth framework to generate an endogenous distribution of market power across firms. Existing firms increase markups over time through successful innovation. Entrant innovation disrupts the accumulation of market power by incumbents. Using this environment, we highlight a novel misallocation channel for monetary policy. A contractionary monetary policy shock causes an increase in markup dispersion across firms by discouraging entrant innovation relative to incumbent innovation. We characterize the circumstances when contractionary monetary policy may increase misallocation. |
| Keywords: | monetary policy; markup dispersion; allocative efficiency; market power |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97992&r=com |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | Biased recommendations arise naturally in markets with heterogeneous consumers. We study a model in which a monopolist offers an experience good to a population of consumers with heterogeneous tastes and makes personalized purchase recommendations. We provide conditions under which a firm makes welfare-reducing purchase recommendations with positive probability, resulting in inflated recommendations. We extend this insight to a setting in which an intermediary makes the recommendations, whereas a seller sets the retail price. Regulatory interventions that forbid inflated recommendations may lead to higher social welfare or may backfire. |
| Keywords: | recommendation bias, recommender system, asymmetric information, experience good, intermediation |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_336v2&r=com |
| 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: | 2024–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2375r1&r=com |
| By: | Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | Le développement de l'Intelligence Artificielle (IA) générative fait l'objet d'une attention particulière de la part des autorités de concurrence. Ses impacts peuvent être déterminants en ce qu'elle peut aussi bien rebattre les cartes du jeu concurrentiel, c'est-à-dire affaiblir les positions de force des grandes firmes pivot des grands écosystèmes numériques actuels, que donner lieu à une nouvelle consolidation, en leur permettant d'étendre leur contrôle à cette technologie d'usage général qui est appelée à exercer un rôle déterminant dans la structuration de notre économie. Le ressort des initiatives des régulateurs de la concurrence tient à la crainte que le contrôle de certaines ressources essentielles conduise à étendre la puissance économique de ces acteurs vers ce nouveau marché. Les autorités de concurrence feraient dès lors face aux mêmes enjeux que ceux induits par les situations de dominance et de verrouillage des écosystèmes actuels : difficultés dans la définition et dans la mise en oeuvre de remèdes concurrentiels effectifs ou encore nécessité d'instaurer des réglementations spécifiques pour prévenir les dommages concurrentiels. |
| Keywords: | IA générative, avantage lié aux données, écosystèmes numériques, Big Techs |
| JEL: | K21 L12 L13 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2024-12&r=com |
| By: | Mogens Fosgerauy; Julien Monardoz; André de Palma (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We introduce the inverse product differentiation logit (IPDL) model, a micro-founded inverse market share model for differentiated products that captures market segmentation according to one or more characteristics. The IPDL model generalizes the nested logit model to allow richer substitution patterns, including complementarity in demand, and can be estimated by linear instrumental variables regression with market-level data. Furthermore, we provide Monte Carlo experiments comparing the IPDL model to the workhorse empirical models of the literature. Lastly, we demonstrate the empirical performance of the IPDL model using a well-known dataset on the ready-to-eat cereals market. |
| JEL: | C26 D11 D12 L |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2023-17&r=com |
| By: | Mella-Barral, P.; Sabourian, H. |
| Abstract: | Firms can voluntarily create independent firms to implement their technologically distant innovations and capture their value through capital markets. We argue that when firms repeatedly compete to make innovations, there is inefficient external implementation of innovations and “excessive†creation of such firms. This inefficiency is most exacerbated in the early stages of an industry, when the number of firms is still limited. |
| Keywords: | Repeated Innovations, Spin-Offs, Voluntary Firm Creation |
| JEL: | M13 O31 O33 |
| Date: | 2023–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2312&r=com |
| By: | Stephan Lauermann; Asher Wolinsky |
| 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:bon:boncrc:crctr224_2024_519&r=com |
| By: | Liu, Yi; Matsumura, Toshihiro |
| Abstract: | We formulate a duopoly model with international location choice in the presence of global common ownership. We theoretically examine how payoff interdependence caused by overlapping ownership such as common and cross ownership affects location and production choices, and resulting welfare. We find that positive payoff interdependence enhances international location diversification, which may improve global welfare. |
| Keywords: | Overlapping ownership; Transport costs; Welfare-improving production substitution; Spatial Cournot; Market-oriented location; Cost-oriented location |
| JEL: | F12 L13 R32 |
| Date: | 2024–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120495&r=com |
| By: | Flavio Delbono; Carlo Reggiani |
| Abstract: | We propose a new model of mixed oligopoly where a workers’ cooperative firms competes with a number of profit maximising companies. Building upon a large empirical evidence, we innovate as compared to the traditional literature on the objective function of the cooperative; moreover, its membership is treated as endogenous in the Cournot-Nash equilibrium. We show which factors may be responsible of the degeneration of the workers’ cooperative firms, which occurs when the number of members shrinks with respect to the overall employees. |
| JEL: | L21 L25 P13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1194&r=com |
| By: | WATANABE Mariko; KUBO Kensuke |
| Abstract: | The licensing of standard-essential patents (“SEPs†) in the cellular communications field has been a contentious issue. In particular, Qualcomm’s licensing policies for cellular communication standards have been the subject of several lawsuits and episodes of government intervention. We evaluate the impact of the most drastic intervention to date: the Chinese government's 2015 decision to forcibly lower Qualcomm royalty rates by 1.23 – 1.75 percentage points. Using a simple theoretical model, we argue that such an intervention could have ambiguous effects on consumers. To quantify the policy's impact, we construct a structural econometric model of the Chinese smartphone and SoC markets which allows for strategic pricing in the two vertically-related markets. Counterfactual analysis using the estimated model allows us to quantify the intervention’s impact on smartphone manufacturers' marginal costs and product prices. Our simulation results indicate that the intervention caused an unequivocal increase in smartphone manufacturers' marginal costs (1.1 percent on average). However, this was more than offset by smartphone manufacturers' incentive to lower their prices under the reduced royalty rate, leading to a slight reduction in smartphone prices (0.6 percent on average). Taken together, these results suggest that the Chinese government's intervention had the intended effect on social welfare, although its magnitude was fairly limited. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24042&r=com |
| By: | Liedtke, Falk |
| Abstract: | In the 1910s and 1920s, the major Berlin private banks created extensive branch networks. Among them the Commerzbank stood out in particular, building up the second-largest branch network by the mid-1920s. However, the expansion was plagued by problems from the outset. Until the 1930s, Commerzbank was only moderately successful in implementing its business strategies in the new branches. The organization of the customer lending business in particular was burdened by arbitrary and often risky business decisions by the branches, which ultimately contributed significantly to the bank's liquidity problems during the banking crisis of 1931. The risky branch business was directly linked to the aggressive expansion strategies of the major Berlin banks, whose rapidly growing number of branches competed with each other in an increasingly crowded market in the 1920s. An examination of the surviving sources from Commerzbank's branch business reveals an instrumentalization of the customer lending business, whereby an increasing willingness to take risks in lending was used as a tool in competition with a growing number of rival banks. |
| Keywords: | Bank History, Credit, Competition, Financial Crisis History, History ofFinancial Institutions, Lending, Market Structure |
| JEL: | N24 D04 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ibfpps:289478&r=com |