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on Industrial Competition |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Compatibility and connectivity are essential elements in a network economy. Using the degree of network compatibility as a measure of market competitiveness, we consider the impact of compatibility on profit incentives to innovate in a network goods industry. That is, an increase in the degree of network compatibility possibly reduces market competitive pressure. In addition, we investigate the impact on consumer benefits (i.e., marginal consumer surplus) caused by the innovation. We demonstrate that as the degree of compatibility increases, the profit incentives to innovate first decrease, then increase (i.e., a U-shaped function of compatibility); but, conversely, the consumer benefits first increase, then decrease (i.e., an inverted U-shaped function of compatibility). |
| Keywords: | innovation; network compatibility; a fulfilled expectation; cost-reducing R&D; Cournot duopoly |
| JEL: | D43 L13 L15 O31 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:274&r= |
| By: | Gautam Gowrisankaran; Philipp Schmidt-Dengler |
| Abstract: | This paper analyzes dynamic oligopoly models where investment is the principal strategic variable of interest, there are a large number of investment choices, and there are privately observed shocks to the marginal cost of investment. We show that simulation methods to compute these models can result in non-existence of pure strategy equilibrium. We provide a computationally efficient method to calculate optimal investment probabilities and show how to apply our methods to the recent dynamic empirical literature. The method iteratively finds the investment choices chosen with positive probability and cutoff values of the private information shocks across options in this set. |
| JEL: | C63 C73 L11 L13 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32399&r= |
| By: | Brown, Zach Y.; Egan, Mark; Jeon, Jihye; Jin, Chuqing; Wu, Alex A. |
| Abstract: | The number of index funds increased drastically from 2000 to 2020, partially fueled by the emergence of exchange-traded funds (ETFs). Despite the growing availability of similar products, price dispersion persists, with many expensive funds still available, indicating significant market power among index funds. One explanation is that investor inertia limits the adoption of new products and interacts with other market frictions to restrict competition. To understand the sources and implications of market power, we develop a tractable quantitative dynamic model of demand for and supply of index funds that accounts for information frictions and heterogeneous preferences, in addition to inertia. These frictions on the demand side create market power for index fund managers, which fund managers can further exploit by price discriminating and charging higher expense ratios to retail investors. We find that inertia is high, with only 13\% of households updating their portfolio at least once yearly. Although inertia is high, its impact on the investment behavior of households is limited because they struggle to optimize investment decisions due to information frictions. Thus, there is an interaction between the two frictions—inertia is more costly for investors when information frictions are low. We show that although the introduction of ETFs lowered expense ratios through both the cost advantage of ETFs and increased competition, demand-side frictions limited product adoption. |
| JEL: | G11 G2 G5 L0 |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129370&r= |
| By: | OECD |
| Abstract: | Competition authorities have already acquired significant knowledge about the concept of market power and dominance as well as practical experience when assessing anticompetitive practices. However, the introduction of potential new concepts, such as economic moats and entrenchment, may complicate this analysis and further blur the lines between lawful and unlawful practices. This paper discusses the relation between economic moats and entrenchment with market power and calls for further reflections among competition authorities and practitioners on the challenges these concepts may pose. It explores several possible options, including incentivising the use of investigative and analytical techniques, as well as strengthening regulatory tools. |
| Date: | 2024–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaac:308-en&r= |
| By: | OECD |
| Abstract: | The regulation of occupations is widespread, extending beyond the liberal professions, such as lawyers and engineers, to a broader set of other economic activities. Competition authorities have long been active in improving competition in these markets, both through enforcement action and by advocating to make regulation more pro-competitive. This paper aims to support competition authorities’ advocacy efforts. It includes an overview of the literature about the effects of regulation of professional services, which competition authorities can draw on to advocate for the benefits of less restrictive regulation where appropriate. The paper also brings together analytical frameworks developed by the OECD and jurisdictions such as Australia, the US and EU to assess regulatory barriers to competition. The paper further draws on case studies of advocacy efforts from competition authorities across a range of OECD member countries. |
| Date: | 2024–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaac:307-en&r= |
| By: | Tristany Armangué-Jubert; Nezih Guner; Alessandro Ruggieri |
| Abstract: | Imperfect competition in labor markets can lead to efficiency losses and lower aggregate output. This paper examines how variations in labor market competitiveness may account for differences in GDP per capita among countries. By structurally estimating an oligopsony model with free entry across different development stages, we find that labor market power increases with GDP per capita. Wage mark-downs vary from 54% in low-income countries to around 24% in the richest ones. If labor markets in poorer countries were as competitive as in more developed ones, their output per capita could rise by up to 45%. |
| Keywords: | labor market power, oligopsony, development, inequality |
| JEL: | J42 L13 O11 E24 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1446&r= |
| By: | Gupta, Apoorva; Stiebale, Joel |
| Abstract: | We study the effect of stronger patent protection on innovation activities of firms and firm-product level markups. Relying on cross-industry differences in the use of patents, we exploit firm-level variation in exposure to India's patent reform. For firms more exposed to stronger patent protection, we find an increase in patenting and R&D expenditure post-reform. Additionally, we estimate an increase in firm-product level markups after the reform, driven primarily by lower marginal costs rather than higher prices. Our results indicate that process innovations and output expansion contributed to these cost-savings, and incomplete pass-through accounts for a substantial part of rising markups. |
| Keywords: | Intellectual property rights, patent protection, innovation, R&D, markups, patents |
| JEL: | L10 O30 O31 O00 D22 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:295746&r= |
| By: | C. Friedrich Kreuser; Michael Kilumelume; Rulof Burger |
| Abstract: | We estimate structural, materials, and labour markups for the South African economy at the three-digit industry level for 2012-19. The fall in structural labour and materials markups found for the numerical majority of industries are generally isolated to smaller industries, with industries accounting for a higher proportion of sales generally experiencing smaller downward shifts. We show that materials-based markups are increasing over this period. |
| Keywords: | Market power, Markups, Competitiveness |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-31&r= |
| By: | Bos, Iwan; Maccarrone, Giovanni; Marini, Marco A. |
| Abstract: | Anti-consumerism is a doctrine that aims to discourage excessive consumption because of its damaging effect on the environment. It can either focus on creating psychic costs for consumers (a ‘stick’) or psychic benefits for non-consumers (a ‘carrot’). This paper examines the impact of these two approaches on competition and welfare. The competitive effect is comparable in both cases – anti-consumerism (weakly) reduces competitive pressure as well as prices, outputs and profits. In terms of consumer and social welfare, however, the carrot performs strictly better than the stick. |
| Keywords: | Consumer/Household Economics, Public Economics |
| Date: | 2024–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:342916&r= |
| By: | Pierre Azoulay; Joshua L. Krieger; Abhishek Nagaraj |
| Abstract: | Drawing insights from the field of innovation economics, we discuss the likely competitive environment shaping generative AI advances. Central to our analysis are the concepts of appropriability—whether firms in the industry are able to control the knowledge generated by their innovations—and complementary assets—whether effective entry requires access to specialized infrastructure and capabilities to which incumbent firms can ration access. While the rapid improvements in AI foundation models promise transformative impacts across broad sectors of the economy, we argue that tight control over complementary assets will likely result in a concentrated market structure, as in past episodes of technological upheaval. We suggest the likely paths through which incumbent firms may restrict entry, confining newcomers to subordinate roles and stifling broad sectoral innovation. We conclude with speculations regarding how this oligopolistic future might be averted. Policy interventions aimed at fractionalizing or facilitating shared access to complementary assets might help preserve competition and incentives for extending the generative AI frontier. Ironically, the best hopes for a vibrant open source AI ecosystem might rest on the presence of a “rogue” technology giant, who might choose openness and engagement with smaller firms as a strategic weapon wielded against other incumbents. |
| JEL: | L17 L86 O32 O38 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32474&r= |
| By: | OECD |
| Abstract: | Data plays an increasingly important role for online platforms and the majority of digital business models. Along with data becoming central to competition and the conduct of actors in digital markets, there has been an increase in data privacy regulations and enforcement worldwide. The interplay between competition and data privacy has prompted questions about whether data privacy and the collection of consumers’ data constitute an antitrust issue. Should competition considerations be factored into decisions by data protection authorities, and, if so, how can synergies between the two policy areas be enhanced and tensions overcome? This paper explores the links between competition and data privacy, their respective objectives, and how considerations pertaining to one policy area have been, or could be, included into the other. It investigates enforcement interventions and regulatory measures that could foster synergies or lead to potential challenges, and offers insights into models for co-operation between competition and data protection authorities. This is a joint working paper from the OECD Competition and Digital Economy Policy Secretariat. |
| Date: | 2024–06–07 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:310-en&r= |
| By: | Zongxia Liang; Yi Xia; Bin Zou |
| Abstract: | We introduce a two-layer stochastic game model to study reinsurance contracting and competition in a market with one insurer and two competing reinsurers. The insurer negotiates with both reinsurers simultaneously for proportional reinsurance contracts that are priced using the variance premium principle; the reinsurance contracting between the insurer and each reinsurer is modeled as a Stackelberg game. The two reinsurers compete for business from the insurer and optimize the so-called relative performance, instead of their own surplus; the competition game between the two reinsurers is settled by a non-cooperative Nash game. We obtain a sufficient and necessary condition, related to the competition degrees of the two reinsurers, for the existence of an equilibrium. We show that the equilibrium, if exists, is unique, and the equilibrium strategy of each player is constant, fully characterized in semi-closed form. Additionally, we obtain interesting sensitivity results for the equilibrium strategies through both an analytical and numerical study. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.06235&r= |