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on Industrial Competition |
| By: | Martin Peitz |
| Abstract: | In this chapter, I review the economic theory of two-sided platforms. First, I elaborate on the prevailing price structure in monopoly and oligopoly and explore the prevailing market structure. Second, I consider the choice of non-price strategies that affect users on the platform and address the horizontal and vertical scope of platforms. |
| Keywords: | Two-sided platform, price theory, digital markets, network effects, platform design |
| JEL: | L12 L13 L41 L42 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_584 |
| By: | Jose M. Betancourt; Ali Hortaçsu; Aniko Öry; Kevin R. Williams |
| Abstract: | We study dynamic price competition between sellers offering differentiated products with limited capacity and a common sales deadline. In every period, firms simultaneously set prices, and a randomly arriving buyer decides whether to purchase a product or leave the market. Given remaining capacities, firms trade off selling today against shifting demand to competitors to obtain future market power. We provide conditions for the existence and uniqueness of pure-strategy Markov perfect equilibria. In the continuous-time limit, prices solve a system of ordinary differential equations. We derive properties of equilibrium dynamics and show that prices increase the most when the product with the lowest remaining capacity sells. Because firms do not fully internalize the social option value of future sales, equilibrium prices can be inefficiently low such that both firms and consumers would benefit if firms could commit to higher prices. We term this new welfare effect the Bertrand scarcity trap. |
| JEL: | C7 D04 D6 L0 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32673 |
| By: | Carl Shapiro; Ali Yurukoglu |
| Abstract: | Has the United States economy become less competitive in recent decades? One might think so based on a body of research that has rapidly become influential for antitrust policy. We explain that the empirical evidence relating to concentration trends, markup trends, and the effects of mergers does not actually show a widespread decline in competition. Nor does it provide a basis for dramatic changes in antitrust policy. To the contrary, in many respects the evidence indicates that the observed changes in many industries are likely to reflect competition in action. We highlight research that points to targeted interventions that can enable antitrust enforcement policy to better promote and protect competition. Throughout the paper, we identify open questions and opportunities for future research in the cross-industry evidence-at-scale paradigm, the industry-specific study paradigm, and their intersection. |
| JEL: | L13 L40 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32762 |
| By: | Rosina Rodríguez Olivera |
| Abstract: | I study the incentives of an informed firm to share its private information with its competitor and the incentives of a regulator to constrain or enforce disclosure in order to benefit consumers. Firms offer differentiated goods, compete a là Bertrand and one firm has an information advantage about demand over its competitor. I show that full disclosure of information is optimal for the informed firm, because it increases price correlation and surplus extraction from consumers. A regulator can increase expected consumer surplus and welfare by restricting disclosure, but consumers can benefit from the regulator privately disclosing some information to the competitor. Disclosure increases the ability of firms to extract surplus from consumers, but private disclosure creates a coordination failure in firm pricing. The optimal disclosure policy is chosen to induce goods to be closer substitutes and intensify the competition across firms. |
| Keywords: | Competition, Information |
| JEL: | D18 D43 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_578 |
| By: | Paudel, Ujjwol |
| Keywords: | Industrial Organization, Labor And Human Capital, Research Methods/Statistical Methods |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343822 |
| By: | Jens-Uwe Franck |
| Abstract: | The EU has set itself an ambitious agenda to tackle climate change. Competition policy, including merger review, is called upon to play its part. Based on an analysis of the Commission’s practice, this paper identifies the key framework issues for the consideration of climate change concerns in merger control and the parameters for addressing them under the EU Merger Regulation and in the light of the European Treaties. One focus is on the implications of the differentiated allocation of regulatory powers. It is argued that a distinction must be made between scenarios in which the climate change argument is used to justify stricter or conceptually extended merger control and those in which it is argued that merger control should need to be relaxed for climate change reasons. With regard to the first scenario, shifts of a normative nature can be observed and are indeed called for, but these take place within the consumer welfare paradigm and it remains the case that the protection of competition is the sole overriding principle of the EU Merger Regulation. In contrast, in the second scenario, merger-specific positive effects on climate concerns need to be considered even if they are not captured by the consumer welfare paradigm. |
| Keywords: | antitrust law, merger control, climate change, environmental sustainability |
| JEL: | K21 K32 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_576 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper explores a price-setting oligopoly game where labor-managed firms have the option to provide lifetime employment as a strategic commitment. The game unfolds in two stages. In the first stage, each firm independently and simultaneously decides whether to provide lifetime employment as a strategic commitment. If a firm provides lifetime employment, then it chooses an output level and establishes a lifetime employment agreement with the required number of employees to reach the output level. In the second stage, each firm independently and simultaneously selects a price level to maximize its objective function value. At the conclusion of the second stage, the market opens, and each firm sells at its own price. The paper delves into the equilibrium of the labor-managed Bertrand oligopoly game. The analysis reveals that the equilibrium aligns with the Bertrand solution when no lifetime employment is offered. Consequently, the paper concludes that using lifetime employment as a strategic commitment device is not advantageous for labor-managed firms in the price-setting competition. |
| Keywords: | Labor-managed firm; Lifetime employment; Price-setting model; Substitute goods |
| JEL: | C72 D21 L13 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121486 |
| 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:ces:ceswps:_11218 |
| By: | OECD |
| Abstract: | This paper discusses recent developments in Artificial Intelligence (AI), particularly generative AI, which could positively impact many markets. While it is important that markets remain competitive to ensure their benefits are widely felt, the lifecycle for generative AI is still developing. This paper focuses on three stages: training foundation models, fine-tuning and deployment. It is too early to say how competition will develop in generative AI, but there appear to be some risks to competition that warrant attention, such as linkages across the generative AI value chain, including from existing markets, and potential barriers to accessing key inputs such as quality data and computing power. Several competition authorities and policy makers are taking actions to monitor market developments and may need to use the various advocacy and enforcement tools at their disposal. Furthermore, co-operation could play an important role in allowing authorities to efficiently maintain their knowledge and expertise. |
| Date: | 2024–05–24 |
| URL: | https://d.repec.org/n?u=RePEc:oec:comaaa:18-en |
| By: | Gafarova, Gulmira; Perekhozhuk, Oleksandr; Glauben, Thomas |
| Abstract: | This study looks at whether Kazakh and Russian wheat exporters leverage their dominant share of the wheat markets in the South Caucasus to exercise market power. We apply a three-stage estimation for systems of simultaneous equations and Zellner’s seemingly unrelated regression to analyse residual demand elasticity. The results of both estimations provide empirical evi-dence of Russian market power in the wheat markets of the South Caucasus but no evidence of a Kazakh oligopoly. Russian exporters possess greater market power in Armenia than in Geor-gia. Market power depends on the presence of competitors in the destination market. The results show that Kazakh exporters restrict the market powers of Russian exporters in the Azerbaijani wheat market, while Russian exporters constrain the market power of Kazakh exporters in the Azerbaijani and Georgian wheat markets. Ukrainian wheat exporters are able to intervene in the market powers of Russian exporters in Azerbaijan and Georgia, while they restrict Kazakh oligopoly in the Georgian market. Some export restrictions imposed by wheat exporting coun-tries significantly affected competition in wheat importing countries. |
| Keywords: | International Relations/Trade |
| Date: | 2023–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ags:gewi23:344230 |
| By: | Daniel Deisenroth; Utsav Manjeer; Zarak Sohail; Steven Tadelis; Nils Wernerfelt |
| Abstract: | Digital advertising, which uses consumer data to target ads to users, now accounts for most of global ad expenditures. Privacy concerns have prompted regulations that restrict the use of personal data. To inform these policy debates, we develop an equilibrium model of advertising and market structure to analyze the impact of privacy regulation on market outcomes. We test the model’s predictions using the launch of Apple’s App Tracking Transparency feature, which created a natural experiment that limited the use of consumer data. Leveraging data from all U.S. advertisers on Meta combined with offline administrative data, we find that reductions in digital ad effectiveness led to decreases in investments in advertising, increases in market concentration, and increases in product prices. These effects are economically meaningful in magnitude and suggest potential harms to both firms and consumers from privacy regulation. |
| JEL: | D22 D40 L10 L59 M38 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32726 |
| By: | Hendrik Döpper; Alexander MacKay; Nathan H. Miller; Joel Stiebale |
| Abstract: | We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. Using detailed data on prices and quantities for products in more than 100 distinct product categories, we estimate flexible demand systems and recover markups under an assumption that firms set prices to maximize profit. Our empirical strategy obtains a panel of consumer preferences and marginal costs based on the estimation of separate random coefficient models by category and year. We find that markups increased by about 30 percent on average over the sample period. The change is primarily attributable to decreases in marginal costs, as real prices only increased slightly from 2006 to 2019. Our estimates indicate that consumers have become less price sensitive over time. |
| JEL: | D20 D40 L10 L2 L81 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32739 |
| By: | Babina, Tania (Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)); Barkai, Simcha (Boston College); Jeffers, Jessica (HEC Paris); Karger, Ezra (Federal Reserve Bank of Chicago); Volkova, Ekaterina (University of Melbourne - Faculty of Business and Economics) |
| Abstract: | We hand-collect and standardize information describing all 3, 055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries. |
| Keywords: | antitrust enforcement; economic activity; employment; business formation |
| JEL: | E24 J21 K21 L40 |
| Date: | 2023–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1488 |
| By: | Kawabata, Chiaki; Takahara, Tsuyoshi |
| Abstract: | We consider an environment wherein a multidisciplinary firm providing audit (AS) and non-audit services (NAS) competes with an AS-specialty firm and a NAS-specialty firm, and show how we should intervene in the markets for AS quality improvement. We assume that the multidisciplinary firm faces the service provision restriction: it cannot provide the NAS to the clients who purchase its AS and maximize the total profit (centralized decision). We find that policies which intensify competition do not necessarily improve and may rather reduce the AS quality since such policies incentivize the multidisciplinary audit firm to earn profits in the NAS market by moving away from competing in the AS market. Moreover, the multidisciplinary firm's separation is the most effective policy for AS quality improvement, as it allows the service provider to avoid the service provision constraint and delegate their decision in audit quality. |
| Keywords: | Separation of Multidisciplinary Firm, Hotelling Model, Audit Service Competition |
| JEL: | G34 L51 M42 |
| Date: | 2024–05–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:120907 |
| By: | Robin Ng |
| Abstract: | Free and Open-Source Software (FOSS) are developed by a community of developers led by a coordinator. Coordinators balance the following trade-off: (i) more developers improve FOSS quality—a positive vertical differentiation effect; (ii) more developers lead to more diverse views, driving FOSS characteristics away from the preferences of existing developers—a negative horizontal differentiation effect. FOSS are able to attract more developers when coordinators improve their level of coordination, increasing the marginal vertical network effect, or by having a more permissive Open-Source license, increasing the marginal horizontal network effect. More permissive Open-Source licenses can intensify competition between FOSS and proprietary software, resulting in lower prices. However permissive licenses may reduce the incentives to coordinate FOSS, leading to lower quality FOSS that only serve niche markets. I explore coordinators who may have different motivations—self-interested Founders, volunteering Altruists, and profit-driven Managers—discussing when and how they choose to coordinate FOSS. |
| Keywords: | Open-Source Software, Network effects, Software Licensing |
| JEL: | D21 D26 L14 L17 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_585 |
| By: | Mert Demirer; Ömer Karaduman |
| Abstract: | Using rich data on hourly physical productivity and thousands of ownership changes from US power plants, we study the effects of acquisitions on efficiency and underlying mechanisms. We find a 2% average increase in efficiency for acquired plants, beginning five months after acquisitions. Efficiency gains rise to 5% under direct ownership changes, with no significant change when only parent ownership changes. Investigating the mechanisms, three-quarters of the efficiency gain is attributed to increased productive efficiency, while the rest comes from dynamic efficiency through changes in production allocation. Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements. Finally, acquired plants improve their performance beyond efficiency by increasing output and reducing outages. |
| JEL: | L22 L25 L40 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32727 |
| By: | Robert J. Barro |
| Abstract: | The Hotelling locational model and its adaptations to a circular city provide a core framework for research in industrial organization. The present paper expands the explanatory power of this model by incorporating a continuum of consumers with constant-elasticity demand functions along with stores that have constant marginal costs of production. The stores are evenly spaced in equilibrium. The model generates a simple formula in which the markup of price over marginal cost depends on the spacing between stores and a transportation-cost parameter but is independent of the elasticity of demand. This result reflects pricing decisions by stores that factor in the threat of losing business entirely at the borders with neighboring stores. The free-entry solutions for the number of stores and their spacing approximate socially optimal values but quantities of goods consumed are inefficiently low. |
| JEL: | L1 L12 L13 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32660 |
| By: | Louis-Daniel Pape; Michelangelo Rossi |
| Abstract: | This paper examines the impact of the Digital Markets Act (DMA) on consumer behavior, focusing on changes in Google’s search result presentation in the European Union (EU). Specifically, it investigates the effects of Google’s removal of clickable maps in search results, a modification implemented in January 2024. This change forces users to perform additional searches to access Google Maps or alternative mapping services, thus increasing search costs. Using a difference-in-differences approach, we compare Google search volumes from EU to non-EU countries before and after the implementation of the DMA. By eliminating Google Maps’ advantage of being only one click away from Google Search users, we find that EU consumers search significantly more for online mapping services. We measure a 25% and 18% increase in Google’s search volume for the query terms maps and google maps, resulting in an excess of 34, 407, 000 and 8, 901, 000 searches over six months, respectively. This search increase suggests potential exposure to alternative mapping services. However, searches for services like apple maps and bing maps also rose, but not as significantly. Moreover, traffic data shows a non-significant decrease in visits to Google Maps, suggesting minimal migration to alternative services. These findings indicate that removing Google’s one-click advantage can lead to higher search costs for users without significantly boosting the discovery or adoption of alternative mapping services in the short run. |
| Keywords: | self-preferencing, online mapping services, Google Maps, Google Search, Digital Markets Act |
| JEL: | L41 L86 K21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11226 |
| By: | Dasol Kim; Luke Olson; Toan Phan |
| Abstract: | How does competition affect banks' adaptation to emergent risks for which there is limited supervisory oversight? The analysis matches detailed supervisory data on home equity lines of credit with high resolution flood projections to identify climate risks. Following Hurricane Harvey, banks updated their internal risk models to better reflect flood risk projections, even in areas unaffected by the disaster. These updates are only detected in banks with exposures to the disaster, indicating heterogeneous bank learning. We use this heterogeneity to identify how bank adaptation is affected by competition. Exposed banks reduce lending to areas with higher flood risks, but only in less competitive markets, suggesting that competition fosters risk-taking over risk mitigation. Additionally, banks are less likely to adapt in markets where competitors are also less likely to do so, suggesting a strategic complementarity in bank adaptation. More broadly, our paper sheds light on the role of competitive forces in how banks manage emerging risks and relevant supervisory challenges. |
| Keywords: | Banks; climate risk; real estate; natural disasters; competition; moral hazard. |
| JEL: | D14 E60 G21 Q54 |
| Date: | 2024–06–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:98617 |
| By: | Diane Coyle (Bennett Institute for Public Policy, The Productivity Institute); John McHale (University of Galway); Ioannis Bournakis (SKEMA Business School, Université CÈ te d’ Azur); Jen-Chung Mei (Bennett Institute for Public Policy, University of Westminster) |
| Keywords: | Markups, manufacturing, superstars |
| JEL: | D22 D24 D42 D43 E24 O47 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:anj:wpaper:047 |
| By: | James R. Markusen |
| Abstract: | Applied general-equilibrium (AGE) models have often made compromises to circumvent difficult modeling problems. One of these is avoiding endogenous zeros, ruling out important questions. Traditional perfect competition models: when do technologies or trade links switch from active to inactive or vice versa? Heterogeneous firms: what types of firms are active in equilibrium? Multinationals: when do firms switch from exporting to foreign production? Capacity constraints: could trade links or production sectors hit capacity limits? Here I exploit the complementarity approach to general equilibrium, focusing on modeling heterogeneous firms and endogenous multinational production. Instead of the traditional continuum formulation, there is a discrete and finite set of firm types, differing in marginal costs across but not within types. There is an upper bound on the number of firms that can enter in each firm type. Formulated as a non-linear complementarity problem, we can solve for the set of active firm types in relation to characteristics of the economy such as size or trade costs and their modes of operation: no entry, domestic, exporting, multinational. The analysis easily incorporates endogenous markups and positive aggregate profits. Productivities can be calculated directly from data and no integrals/integration/parametric distributions are required. |
| JEL: | C63 F12 F23 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32721 |
| By: | Paudel, Ujjwol |
| Keywords: | Industrial Organization, Production Economics, Labor And Human Capital |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343821 |
| By: | Ajewole, Kayode; Johnson, Michael |
| Abstract: | This study deals specifically with the international transmission of wheat prices wherein the effect of prices in one market impacts the prices of another. Specifically, it shows that import prices in some countries respond in an asymmetric fashion to changes in the export prices of U.S. wheat. Our results indicate that market concentration in the importing country influences price asymmetry and amount of price variability sends a sufficient clear signal to market participants. We also find that the 2008 financial and food price crisis changed the degree of asymmetry in most of the countries studied in this paper. |
| Keywords: | Demand and Price Analysis, International Relations/Trade |
| Date: | 2024–07–26 |
| URL: | https://d.repec.org/n?u=RePEc:ags:cfcp15:344396 |
| By: | Gulfam Haider; Laiba Zubair; Aman Saleem |
| Abstract: | This study, rooted in dynamic capability theory and the developing era of Big Data Analytics, explores the transformative effect of BDA EDCs on marketing. Ambidexterity and firms market performance in the textile sector of Pakistans cities. Specifically, focusing on the firms who directly deal with customers, investigates the nuanced role of BDA EDCs in textile retail firms potential to navigate market dynamics. Emphasizing the exploitation component of marketing ambidexterity, the study investigated the mediating function of marketing ambidexterity and the moderating influence of competitive pressure. Using a survey questionnaire, the study targets key choice makers in textile firms of Faisalabad, Chiniot and Lahore, Pakistan. The PLS-SEM model was employed as an analytical technique, allows for a full examination of the complicated relations between BDA EDCs, marketing ambidexterity, rival pressure, and market performance. The study Predicting a positive impact of Big Data on marketing ambidexterity, with a specific emphasis on exploitation. The study expects this exploitation-orientated marketing ambidexterity to significantly enhance the firms market performance. This research contributes to the existing literature on dynamic capabilities-based frameworks from the perspective of the retail segment of textile industry. The study emphasizes the role of BDA-EDCs in the retail sector, imparting insights into the direct and indirect results of BDA EDCs on market performance inside the retail area. The study s novelty lies in its contextualization of BDA-EDCs in the textile zone of Faisalabad, Lahore and Chiniot, providing a unique perspective on the effect of BDA on marketing ambidexterity and market performance in firms. Methodologically, the study uses numerous samples of retail sectors to make sure broader universality, contributing realistic insights. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.15522 |
| By: | Joshua S. Gans |
| Abstract: | This paper examines the regulation of technological innovation direction under uncertainty about potential harms. We develop a model with two competing technological paths and analyze various regulatory interventions. Our findings show that market forces tend to inefficiently concentrate research on leading paths. We demonstrate that ex post regulatory instruments, particularly liability regimes, outperform ex ante restrictions in most scenarios. The optimal regulatory approach depends critically on the magnitude of potential harm relative to technological benefits. Our analysis reveals subtle insurance motives in resource allocation across research paths, challenging common intuitions about diversification. These insights have important implications for regulating emerging technologies like artificial intelligence, suggesting the need for flexible, adaptive regulatory frameworks. |
| JEL: | L51 O33 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32741 |