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on Industrial Competition |
| By: | Tsuritani, Ryosuke |
| Abstract: | In a vertical market, the price of the final good is high if a seller has strong bargaining power. Thus, a policy that strengthens the bargaining power of sub-suppliers may be desirable from a fairness perspective while undesirable from an efficiency perspective. We consider a vertical market with one sub-supplier, focal supplier, and manufacturer. The focal supplier purchases inputs from the sub-supplier and sells its products to the manufacturer. Suppliers' selling prices are determined through Nash bargaining. We find that although suppliers' vertical separation induces triple-markup inefficiency in vertical relations, if the focal supplier has weak bargaining power over the manufacturer or strong bargaining power over the sub-supplier, the suppliers have the incentive to remain separated. This is because suppliers' vertical separation may be a price-increasing commitment and transfer the bargaining surplus from the manufacturer to the suppliers. Therefore, a policy that strengthens the bargaining power of sub-suppliers may also be justified from an efficiency perspective because it may encourage vertical integration. |
| Keywords: | Vertical market; Vertical integration; Three-tier supply chain; Bargaining; Subcontracting Act |
| JEL: | D42 L23 L40 |
| Date: | 2024–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122071 |
| By: | Jinglei Huang (Tsinghua University, School of Social Science, Mingzhai Building, Haidian District, Beijing, China); Guofu Tan (University of Southern California, 3620 South Vermont Avenue KAP Hall, 300, Los Angeles, CA 90089-0253, United States); Tat-How Teh (Nanyang Technological University, Division of Economics, 48 Nanyang Ave, 639818 Singapore); Junjie Zhou (Tsinghua University, School of Economics and Management, 30 Shuangqing Road, Haidian District, Beijing, China) |
| Abstract: | Network interoperability between platforms often comes in various possible configurations, including industry-wide, coalition-based, and pairwise interoperability arrangements. We present an approach to incorporate generalized configurations of network interoperability into the analysis of price competition among any number of symmetric platforms. Specifically, the network benefit received by consumers on each platform increases with the effective network size of the platform, which is determined by an interoperability matrix reflecting the connections between platforms. Four key factors—the strength of interoperability, the shape of the network externality function, the interoperability configuration, and the number of platforms—jointly determine the equilibrium prices. Our findings show, among other things, that increased interoperability strength tends to reduce prices and benefit consumers when: (i) the network externality function exhibits strong increasing returns to scale, or (ii) the interoperability configuration includes multiple coalitions. |
| Keywords: | platforms, interoperability, interconnectivity, compatibility, data sharing, learning curve, coalitions |
| JEL: | D43 L15 L20 L50 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2403 |
| By: | Bird, Davina; Garrod, Luke; Wilson, Chris M |
| Abstract: | Mandatory refund policies have received a lot of attention from both policymakers and academics. Despite this, little is known about how sellers strategically respond to the policy and the resulting effects on competition. To address this, we analyze mandatory refund policies in a framework that flexibly accommodates the full competition spectrum. We show that the policy can benefit consumers in uncompetitive markets under certain conditions, despite reducing social welfare and profits. Nevertheless, we also demonstrate how the policy can be detrimental to consumers, even in very uncompetitive markets. Intuitively, while the policy always protects consumers from some bad outcomes post-purchase, sellers respond by increasing their prices and so consumers have less chance of obtaining a good deal pre-purchase. |
| Keywords: | Refunds; Product Returns; Cooling-Off Periods; Returns Policy; Cancellation Rights |
| JEL: | D18 D21 M37 |
| Date: | 2024–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122125 |
| By: | Sarit Markovich (Kellogg School of Management, Northwestern University, Evanston, IL, USA); Yaron Yehezkel (Coller School of Management, Tel-Aviv University, Ramat-Aviv, Israel) |
| Abstract: | We consider platform competition when platforms can either 1) commercialize users’ data and in return offer their services for free (data-based business model); 2) protect users’ privacy and charge users for participation (subscription-based model); or 3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users’ privacy. When network effects are strong, competition can motivate the incumbent to shift from the subscription-based model to the hybrid model; thereby, increasing data commercialization. Yet, the opposite case occurs when network effects are weak. Moreover, allowing the incumbent to adopt the hybrid model is welfare enhancing when network effects are strong, and welfare reducing (or neutral) otherwise. |
| Keywords: | platforms with network effects; business models; data commercialization |
| JEL: | L1 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2402 |
| By: | Mathias Dewatripont (ULB - Université libre de Bruxelles); Jean Tirole (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: | Scholars and civil society have argued that competition erodes supplier morality. This paper establishes a robust irrelevance result, whereby intense market competition does not crowd out consequentialist ethics; it thereby issues a strong warning against the wholesale moral condemnation of markets and procompetitive institutions. Intense competition, while not altering the behavior of profitable suppliers, may, however, reduce the standards of highly ethical suppliers or not-for-profits, raising the potential need to protect the latter in the marketplace. |
| Keywords: | Competition, Consequentialism, Replacement logic, Non-profits, Corporate social responsability, Race to the ethical bottom |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04695298 |
| By: | Christian Bontemps (ENAC-LAB - Laboratoire de recherche ENAC - ENAC - Ecole Nationale de l'Aviation Civile, 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); Cristina Gualdani (QMUL - Queen Mary University of London); Kevin Remmy (Universität Mannheim) |
| Abstract: | We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes. |
| Keywords: | Endogenous market structure, Networks, Airlines, Oligopoly, Product repositioning, Mergers, Remedies |
| Date: | 2023–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04709707 |
| By: | Ryan Y. Lin; Siddhartha Ojha; Kevin Cai; Maxwell F. Chen |
| Abstract: | Machine-learning technologies are seeing increased deployment in real-world market scenarios. In this work, we explore the strategic behaviors of large language models (LLMs) when deployed as autonomous agents in multi-commodity markets, specifically within Cournot competition frameworks. We examine whether LLMs can independently engage in anti-competitive practices such as collusion or, more specifically, market division. Our findings demonstrate that LLMs can effectively monopolize specific commodities by dynamically adjusting their pricing and resource allocation strategies, thereby maximizing profitability without direct human input or explicit collusion commands. These results pose unique challenges and opportunities for businesses looking to integrate AI into strategic roles and for regulatory bodies tasked with maintaining fair and competitive markets. The study provides a foundation for further exploration into the ramifications of deferring high-stakes decisions to LLM-based agents. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.00031 |
| By: | Kim, Sohui; Ryu, Min Ho |
| Keywords: | Digital Transformation, Online Platform, Traditional Market, Social Representation Theory, Core-Periphery Analysis |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:itsb24:302521 |
| By: | Angela Stefania Bergantino (UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro); Christian Bontemps (ENAC-LAB - Laboratoire de recherche ENAC - ENAC - Ecole Nationale de l'Aviation Civile, 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); Mario Intini (UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro); Ada Spiru (UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro) |
| Abstract: | The purpose of this study is to assess the impact of Lufthansa's bid to acquire the Italian airline ITA Airways. On the basis of different scenarios, we aim to estimate the impact on the supply of air products and on consumers. To simulate the impact of such a merger on the European market, we rely on standard structural models of demand and supply used in the empirical IO literature. Since Berry (1994), many papers have used them to estimate demand in various sectors, including the airline sector, mostly at the US level. In particular, Berry et al. (2006) use a random coefficients model to study the role of hubs, while Berry and Jia (2010) compare the years 1999 and 2006. We want to compare the variation in consumer surplus and equilibrium fares under different scenarios. In particular, we need to model different possibilities for the range of products offered by the new merged entity. We also want to compare these scenarios with others in which ITA Airways could have merged with another airline, such as Air France. In our paper, in our attempt to simulate the impact of the merger on consumer surplus and fares, we face an additional challenge due to the possibility of repositioning the products offered by the competitors of ITA Airlines and LuftHansa. A particular feature of the European market is the presence of many low-cost carriers. These airlines are more likely to react to a reduction in the number of competitors and we need to model their strategies too. |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04709659 |
| By: | Jan De Loecker (KU Leuven and CEPR); Catherine Fuss (National Bank of Belgium, Economics and Research Department); Nathan Quiller-Doust (KU Leuven); Leonard Treuren (KU Leuven) |
| Abstract: | We separately observe variable input expenditure and expenditure on fixed inputs in novel firm-level data covering the Belgian manufacturing sector over the last decades. This permits a deeper investigation of two potential drivers of the globally observed widening gap between firms’ revenue and variable input expenditure: technology and market power. Across the board, cost structures have become less reliant on variable input expenditure over time, while expenditure on fixed inputs or overhead costs has increased in prominence. We relate these changes in firms’ cost structures to performance measures and document that markups and gross profit rates increase substantially as the role of variable costs in production diminishes. Profit rates net of fixed input expenditure also increase, but by substantially less than gross profit rates. Our results suggest that technological change can explain a considerable portion of the widening gap between revenue and variable input expenditure, but that markups increase by more than necessary to break even, and that this phenomenon operates remarkably similarly across different firms and industries. |
| Keywords: | Intermediate goods and services; Fixed cost; Markups; Technology. |
| JEL: | D2 D4 L1 O14 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-459 |
| By: | Roberto Pinheiro |
| Abstract: | In this paper, we present a model of repeated first-price private value auctions in which the bidders have access to a cheap talk communication mechanism. In this framework, messages allow bidders to transmit their preference rankings over the goods to be auctioned, similar to Pesendorfer (2000). We show that collusion through this static mechanism not only dominates the static bid rotation mechanism presented by McAfee and McMillan (1992), but it is also not strictly dominated by the dynamic bid rotation mechanism presented by Aoyagi (2003). However, we show that asymptotic efficiency of collusion through increasing the number of ordered goods, presented by Pesendorfer (2000), demands patience rates to asymptotically approach one, making collusion increasingly more difficult to sustain. Finally, we study mechanisms through which the auctioneer may try to break bidders' collusion. |
| Keywords: | collusion; auctions; cheap talk communication; repeated games |
| JEL: | D44 C72 L41 |
| Date: | 2024–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:98920 |
| By: | Bernardo Caldarola; Luca Fontanelli |
| Abstract: | Recent empirical evidence finds positive associations between digitalisation and industry concentration. However, ICT may not be all alike. We investigate the effect of the purchase of cloud services on the long run size growth rate of French firms. Our findings suggest that cloud services positively impact firm growth rates, with smaller firms experiencing more significant benefits compared to larger firms. This evidence suggests that the diffusion of cloud technologies may help mitigate concentration in the era of the digital transition by favouring the digitalisation and growth of smaller firms, especially when the cloud services provided are more advanced. |
| Keywords: | cloud, ICT, concentration, firm growth rate, firm performance |
| Date: | 2024–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:ssa:lemwps:2024/25 |