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on Industrial Competition |
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Issue of 2024‒08‒19
twenty-six papers chosen by Russell Pittman, United States Department of Justice |
| By: | Javier Donna (University of Florida); Pedro Pereira (Autoridade da Concorrência, Lisbon) |
| Abstract: | The 2023 Merger Guidelines (MGs) change the Agencies’ narrative regarding non-horizontal mergers. They follow a four-pronged approach: (1) They blend horizontal and non-horizontal mergers. (2) They simplify the narrative about non-horizontal mergers. (3) They consolidate and broaden the theories of harm in non-horizontal mergers. (4) They blend economics and law analysis. In this article, we elaborate on these points. We discuss how the MGs’ anticompetitive presumptions apply to non-horizontal mergers, relate them to the economics literature, and provide examples. We finish discussing the economic rationale of the structural presumption involving rivals’ exit concerns due to the exercise of market power and propose a path forward. |
| Keywords: | Antitrust, 2023 Merger Guidelines, Vertical Mergers, Rivals’ Exit, Double Marginalization, Merger Evaluation, Competition Policy |
| JEL: | K21 K41 L42 L44 L52 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:331 |
| By: | Tomaso Duso; Lea Bernhardt; Joanna Piechucka |
| Abstract: | We discuss the main Theories of Harm in EU merger control and their evolution since the 1990s. We present stylised facts and trends using data extracted from EU merger decisions by natural language processing tools. EU merger policy has adapted over time, both in terms of legislation and theories of harm, as well as in terms of the investigative tools and evidence used. The introduction of the new Merger Regulation in 2004, which led to a change in the substantive test, also brought about significant changes in the use of Theories of Harm. Unilateral theories are now used more frequently and have developed further, in particular in relation to the assessment of closeness of competition. Non-horizontal conglomerate and vertical Theories of Harm focusing on foreclosure issues are now much more common and are a standard tool in most in-depth investigations. More novel Theories of Harm related to innovation and digital markets have been developed and implemented since the 2010’s. While market shares remain a central tool for merger assessment, the use of internal documents has increased, accompanied by the use of quantitative tools. With respect to Commission interventions, structural remedies are used more frequently, although behavioural remedies are also increasingly deployed, especially in Phase II. |
| Keywords: | Merger control, theories of harm, unilateral effects, coordinated effects, non-horizontal effects, foreclosure, innovation, ecosystem, digital, market shares, internal documents, structural remedies, behavioural remedies |
| JEL: | K21 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2090 |
| By: | Condorelli, Daniele; Szentes, Balázs |
| Abstract: | We characterize equilibria of oligopolistic markets where identical rms with constant marginal cost compete a' la Cournot. For given maximal willingness to pay and maximal total demand, we rst identify all combinations of equilibrium consumer surplus and industry prot that can arise from arbitrary demand functions. Then, as a further restriction, we x the average willingness to pay above marginal cost (i.e., rst-best surplus) and identify all possible triples of consumer surplus, industry prot and deadweight loss. |
| Keywords: | Cournot; monopoly |
| JEL: | D42 D43 |
| Date: | 2022–08–03 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:111890 |
| By: | Paolo Bertoletti; Federico Etro |
| Abstract: | We study entry in markets with monopolistic competition under quasi-linear preferences, with homogeneous and heterogeneous firms. For common demand systems with a price aggregator that is a demand shifter, we show that entry tends to be insufficient: namely that, given market pricing, the business stealing effect of entry cannot dominate the consumer surplus effect. We then identify preferences that deliver efficient production and selection of firms (including the isoelastic demand case), confirming the insufficient entry result also compared to first-best allocations, and discuss a specification (which includes the Logit case) that also delivers efficient entry. Finally, we introduce more general quasi-linear preferences (nesting those of Spence, Melitz-Ottaviano and other cases) that generate flexible demand systems depending on a price aggregator. In this framework, we show that competitive effects of entry on prices actually strengthen the case for insufficient entry, and discuss conditions for its emergence. |
| Keywords: | Entry, Monopolistic competition, Business stealing, Heterogeneous |
| JEL: | D11 D43 L11 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:543 |
| By: | Karam Jo; Seula Kim |
| Abstract: | We study how friction in learning others’ technology, termed “imperfect technology spillovers, ” incentivizes firms to use different types of innovation and impacts the implications of competition through changes in innovation composition. We build an endogenous growth model in which multi-product firms enhance their products via internal innovation and enter new product markets through external innovation. When learning others’ technology takes time due to this friction, increased competitive pressure leads firms with technological advantages to intensify internal innovation to protect their markets, thereby reducing others’ external innovation. Using the U.S. administrative firm-level data, we provide regression results supporting the model predictions. Our findings highlight the importance of strategic firm innovation choices and changes in their composition in shaping the aggregate implications of competition. |
| Keywords: | competition, innovation, technology spillover, endogenous growth |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-40 |
| By: | Qiang Gong (Zhongnan University of Economics and Law [China]); Yujing Xu (Shenzhen Univerisity [Shenzhen]); Huanxing Yang (OSU - Ohio State University [Columbus]) |
| Abstract: | We study a dynamic model of price competition with differentiated products in which new generations of consumers acquire information about available products from their friends of previous generations. The social network, which links consumers across generations, affects the evolution of consumers' awareness of products and firms' long-term (steady-state) market shares. Focusing on steady-state equilibria, we examine how the structure of the social network—including connectivity and homophily—influences market shares, pricing, and welfare. |
| Keywords: | Learning from friends, Social network, Price competition, Market Shares, Differentiated products |
| Date: | 2024–05–27 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04625204 |
| By: | Bolotova, Yuliya |
| Keywords: | Industrial Organization, Marketing, Livestock Production/Industries |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343553 |
| By: | Gambato, Jacopo; Sandrini, Luca |
| Abstract: | In this study, we analyze the incentives of a streaming platform to bias consumption when products are vertically differentiated. The platform offers mixed bundles of content to monetize consumer interest in variety and pays royalties to sellers based on the effective consumption of the generated content. When products are not vertically differentiated, the platform has no incentive to bias consumption in equilibrium. With vertical differentiation, royalties can differ, and the platform biases recommendations in favor of the cheapest content, hurting consumers and high-quality sellers. Biased recommendations, if unconstrained, eliminate sellers' incentives to increase the quality of their content, but if constrained, may lead to the inefficient allocation of R&D efforts. |
| Keywords: | platform economics, media economics, content aggregator, recommendation bias, innovation |
| JEL: | D4 L1 L5 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300272 |
| By: | Paul Heidhues (Heinrich Heine University Düsseldorf); Mats Kösters (Central European University, Vienna); Botond Kőszegi (University of Bonn) |
| Abstract: | We develop a model of digital ecosystems based on the assumption that a multimarket firm can use a sale in or data from one market to steer users toward its products in other markets. Due to this “cross-market leverage, ” a market leader at an “access point” (where users begin their online journeys) has a high value from offering services in connected markets (where users continue their journeys), and can thus make profitable takeovers. Indeed, because the firm has the threatening outside option of acquiring, and steering users toward, its target’s competitor, it can take over the target at a discount. In contrast, other firms have no or smaller incentives for takeovers, explaining why ecosystems grow out of market leaders at access points. Conversely, cross-market leverage also implies that once an ecosystem has grown, it has an increased value of controlling access points, so it may go to great lengths to dominate these markets. Our theory’s logic suggests that ecosystems have mixed implications for consumer welfare. Under plausible assumptions, a to-be ecosystem takes over market leaders, and this consolidation of good services across markets benefits consumers in the short run. But an ecosystem’s takeovers and dominance of access points lower incentives for entry and innovation, and lower the efficiency of access-point markets with superior alternatives. Hence, the long-run welfare implications of ecosystem growth are often negative. |
| Keywords: | Digital ecosystems, takeover, contestability, entry, envelopment, default effects, steering |
| JEL: | L41 L86 L22 D43 D83 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:329 |
| By: | Mohapatra, Debashrita |
| Keywords: | Industrial Organization, Research Methods/Statistical Methods, Demand And Price Analysis |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343538 |
| By: | Hannes Ullrich; Jonas Hannane; Christian Peukert; Luis Aguiar; Tomaso Duso |
| Abstract: | Tracking online user behavior is essential for targeted advertising and is at the heart of the business model of major online platforms. We analyze tracker-specific web browsing data to show how the prediction quality of consumer profiles varies with data size and scope. We find decreasing returns to the number of observed users and tracked websites. However, prediction quality increases considerably when web browsing data can be combined with demographic data. We show that Google, Facebook, and Amazon, which can combine such data at scale via their digital ecosystems, may thus attenuate the impact of regulatory interventions such as the GDPR. In this light, even with decreasing returns to data small firms can be prevented from catching up with these large incumbents. We document that proposed data-sharing provisions may level the playing field concerning the prediction quality of consumer profiles. |
| Keywords: | Prediction quality, Web Tracking, Cookies, Data protection, Competition Policy, Internet Regulation, GDPR |
| JEL: | C53 D22 D43 K21 L13 L4 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2091 |
| By: | Rahman, Rajib; Rojas, Christian |
| Keywords: | Industrial Organization, Agricultural And Food Policy, Marketing |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:344019 |
| By: | Emmanuel C Mamatzakis |
| Abstract: | This study examines the factors underlying the notably high Greek bank net interest margins compared to the euro-area average, with a particular focus on the interplay between bank competition and recapitalisations. Employing dynamic panel analysis from the early 2000s to 2021, we address potential endogeneity concerns and heterogeneity considerations. Additionally, we utilise local projections impulse response functions to account for structural shifts within the Greek banking landscape. Our findings reveal that diminished bank competition has played a significant role in driving up net interest margins in Greece. Intriguingly, the impact of Greek recapitalisations, in parallel with market conditions characterised by a low level of bank competition, has further contributed to high net interest margins. Supported by evidence from local projections impulse response functions, our study emphasises the necessity of accelerating the banking union and implementing a common regulatory framework across the euro-area. Setting caps on bank interest margins and fees could be a sensible practical recommendation. Such measures are crucial for fostering a more competitive banking environment and mitigating the persistently high net interest margins observed in the Greek banking industry. |
| Keywords: | Bank Competition, Recapitalisations, Net Interest Rate Margin, Dynamic Panel Analysis, Local Projections |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:hel:greese:199 |
| By: | Weber, Daniel |
| Abstract: | Exploring Markets is a paper series discussing niche markets with interesting characteristics. The paper on hand focuses on the market for diamonds. The paper discusses specific characteristics of supply and demand such as the supply chain from mining to retail, the dismantling of the diamond cartel, qualities of diamonds, the Kimberley Process Certification as an approach to ensure ethical sourcing, the role of advertisement in creating demand and the potential disruption of the diamond industry through labgrown diamonds. |
| Keywords: | Market Study, Diamonds |
| JEL: | Z19 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iubhbm:300238 |
| By: | Stefano Castriota; Paolo Frumento; Francesco Suppressa |
| Abstract: | In competitive markets, reputation building is considered an important tool to reduce price competition and increase profits. However, from an empirical point of view, identifying the contribution of collective reputation on price net of other confounding variables such as quality, firm reputation and horizontal differentiation, is not trivial. In this work, using an extensive database on Italian geolocalized wineries, we exploit spatial discontinuity at the borders of the wine appellation areas in Piedmont and Tuscany to investigate the impact of collective reputation on price. Results show that collective reputation carries an important price premium for well-known appellations, while the effect is not significant or even negative for weaker ones. This suggests that an excessive proliferation of collective brands might not be useful and could even turn out being harmful as it can confuse buyers. |
| Keywords: | Reputation, collective reputation, asymmetric information, quality standards, institutional signals, wine |
| JEL: | L14 L15 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2024/310 |
| By: | McAdam, Peter; Meinen, Philipp; Papageorgiou, Chris; Schulte, Patrick |
| Abstract: | Using a new administrative dataset, we provide fresh micro-level evidence on firms' returns to scale (RTS). We employ a new administrative database, iBACH, which contains extensive high-quality annual balance sheet, financial, and demographic information on more than two million non-financial manufacturing, trade and service corporations for five European countries over 2008-2018. Whereas on average, we find sectoral RTS to be close to one (0.98, with a 0.74 - 1.18 range), 32 percent of firms exhibit decreasing returns, and 10 percent increasing returns to scale (IRTS). Although the RTS values have remained relatively stable, there is evidence of some tendency for them to increase over time. When we allow for imperfect competition, the RTS range tightens to 0.98 - 1.08, with a higher share of IRTS industries (15 percent) and essentially zero DRTS cases. Increasing returns are mostly a feature of manufacturing. Finally, we analyze the relationship between different industry characteristics and our RTS estimates. |
| Keywords: | Firm & sectoral production function estimation, imperfect competition, firm characteristics, Gandhi-Navarro-Rivers, iBACH database |
| JEL: | E2 D2 L1 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:300572 |
| By: | OECD |
| Abstract: | Data screening tools in competition investigations are empirical methods that use datasets to evaluate markets and firms’ behaviour in them, identify patterns and draw conclusions based on specific tested parameters. This paper focuses on screens aimed at detecting cartels, as these are by far the most prevalent. It was prepared for discussions on “Data Screening Tools for Competition Investigations” held at the November 2022 session of the OECD Competition Committee’s Working Party No. 3 on Co-operation and Enforcement. |
| Date: | 2022–10–18 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:284-en |
| By: | OECD |
| Abstract: | This paper covers the interactions between competition authorities and sector regulators, formally and in practice, in the most frequent situation when the competition authority is a stand-alone body that enforces competition law in all sectors. In addition, it focuses on enforcement cases, describing procedural set-ups and the interplay of competition and regulation in these cases. It was prepared as background material for a discussion on the topic held during the 2022 OECD Global Forum on Competition. |
| Date: | 2022–10–25 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:285-en |
| By: | OECD |
| Abstract: | This paper highlights recent trends on FDI screening to safeguard essential security interests and merger control mechanisms while exploring the relationship between investment and competition policies. It was prepared as a background note for discussions on “The Relationship between FDI Screening and Merger Control Reviews” held at the November 2022 joint session of the OECD Competition Committee and the OECD Investment Committee. |
| Date: | 2022–11–03 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:287-en |
| By: | OECD |
| Abstract: | This paper discusses the extent to which, and how, government subsidies could be part of the competition analysis by competition authorities. For this, it identifies the potential competition concerns of subsidies – predominantly “deep pockets” and potential subsequent predation – and describes their modest role in competition case law to date. It was prepared as a background note for discussions on “Subsidies, Competition and Trade” held at the 2022 Global Forum on Competition. |
| Date: | 2022–11–10 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:289-en |
| By: | OECD |
| Abstract: | This note was prepared as a background note for a discussion held on the topic during the 2023 OECD-IDB Latin American and Caribbean Competition Forum held in September 2023 in Ecuador. |
| Date: | 2023–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:306-en |
| By: | OECD |
| Abstract: | By mapping theories of harm that have been applied in recent digital merger cases and considering the analyses that have already been undertaken, this note explores the question of whether existing theories of harm are well suited or should be further adapted to comprehensively capture competitive harms arising from mergers in these markets. Or alternatively, whether new theories of harms are needed and if so, what they might look like. It was prepared as a background note for discussions on “Theories of Harm for Digital Mergers” taking place at the June 2023 session of the OECD Competition Committee. |
| Date: | 2023–05–03 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:293-en |
| By: | OECD |
| Abstract: | Fighting poverty remains a top priority and a key challenge to many countries including in Latin America and the Caribbean (LAC). Although LAC countries have strengthened their competition policy in the past decade, poverty has increased in the region, mostly as effect of the recession which followed the Covid-19 pandemic. Given these factual circumstances, it seems relevant to address the role of competition policy in poverty reduction, including the question on how competition authorities can contribute to fighting poverty. This background note highlights the main issues regarding the role competition authorities can play in fighting poverty. For this purpose, it presents the interplay between competition policy and poverty reduction, then focuses on the role of competition authorities from both the enforcement and the advocacy perspectives. The final remarks point that competition authorities may help a broader policy to reduce poverty, particularly by prioritising its work to markets that have a greater impact on the poorest (e.g. markets of essential goods and services).This note was prepared as a background note for a discussion held on the topic during the 2023 OECD-IDB Latin American and Caribbean Competition Forum held in September 2023 in Ecuador. |
| Date: | 2023–05–03 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:292-en |
| By: | OECD |
| Abstract: | This background note considers how competition contributes to lower inflation, despite its unsuitability as a short-term anti-inflationary tool. It explains why competition is important for optimal inflation and summarises some of the empirical evidence of this relationship. It then considers how inflation affects competition, for example by creating conditions for firms to coordinate or by increasing the search costs of consumers. It was prepared as a background note for discussions on “Competition and Inflation” taking place at the November 2022 session of the OECD Competition Committee. |
| Date: | 2022–10–26 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:286-en |
| By: | OECD |
| Abstract: | This paper sets out the objectives and scope of application of debarment sanctions in different jurisdictions; describes the practical issues associated with their application; and suggests ways to maximise their effectiveness. It was prepared as a background note for discussions on “Director Disqualification and Bidder Exclusion in Competition Enforcement” held at the November 2022 session of the OECD Competition Committee. |
| Date: | 2022–12–23 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:291-en |
| By: | OECD |
| Abstract: | This paper explores the longer- and shorter-term challenges of the energy markets and their competition policy implications. It considers why wholesale natural gas and electricity prices have risen so much and the public policy responses to high energy prices. It was prepared as a background note for discussions on “Competition in Energy Markets” held at the November 2022 session of the OECD Competition Committee’s Working Party No. 2 on Competition and Regulation. |
| Date: | 2022–11–24 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:290-en |