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on Industrial Competition |
| By: | Arghya GHOSH; MUKUNOKI Hiroshi |
| Abstract: | Given the rising trend of cross-ownership and mergers and acquisitions, this study builds an oligopoly model with general demand to analyze how partial cross-ownership (PCO) affects market competition and merger control policies in international trade. In our model, ad valorem tariffs are imposed on imports. If the extent of PCO is sufficiently large, international PCO becomes more anti-competitive than domestic PCO, resulting in a higher price. This contrasts with previous results indicating that an international merger is always less anti-competitive than a domestic merger. Additionally, international PCO can result in a higher price than both domestic and international mergers, even without merger synergy effects. Moreover, when competition authorities employ a consumer surplus standard as the merger control policy, pre-merger PCO facilitates approval of the subsequent merger. Trade liberalization encourages the approval of domestic mergers but blocks international mergers from being approved. By way of policy implications, these results suggest that competition authorities should regulate international PCO more heavily. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25003 |
| By: | Mert Demirer; Michael Rubens |
| Abstract: | In this paper, we provide a theoretical characterization of the welfare effects of buyer and seller power in vertical relations and introduce an empirical approach for quantifying the contributions of each channel to deadweight loss. Our model accommodates both monopsony distortions from buyer power and double-marginalization distortions from seller power. Rather than imposing a specific form of vertical conduct, we allow it to arise endogenously based on model primitives. We show that the relative elasticity of upstream supply and downstream demand is the key determinant of whether buyer or seller power creates distortions. Applying our framework to coal procurement by power plants in Texas, we find that 83% of the distortion comes from the monopoly power of coal mines, with the remainder attributed to the monopsony power of power plants. |
| JEL: | J42 L10 L41 L42 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33371 |
| By: | Garrod, Luke; Li, Ruochen; Russo, Antonio; Wilson, Chris M |
| Abstract: | There is limited theoretical understanding of cost pass-through within markets where prices are dispersed. Under a general demand function, we analyse the effects of cost changes in a seminal model of price dispersion, where some consumers are captive to particular sellers while others are not (Varian, 1980). To study pass-through in this mixed-strategy context, we employ a novel approach that links well to the pass-through literature in pure-strategy settings. Following an industry-wide cost increase, we show how the magnitudes of price rises faced by different consumer types, as well as the wider effects on price dispersion, depend upon whether demand is log-concave or log-convex. Furthermore, we examine whether the burden of the cost increase is expected to fall more heavily on captive or non-captive consumers. Finally, we show how our results vary with the level of competition and analyse the relationship between pass-through and demand shocks under price dispersion. |
| Keywords: | Cost pass-through, price dispersion, demand curvature, competition, demand shocks |
| JEL: | D43 D83 L13 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123285 |
| By: | Simon Martin; Hans-Theo Normann; Paul P\"uplichhuisen; Tobias Werner |
| Abstract: | We study the propensity of independent algorithms to collude in repeated Cournot duopoly games. Specifically, we investigate the predictive power of different oligopoly and bargaining solutions regarding the effect of asymmetry between firms. We find that both consumers and firms can benefit from asymmetry. Algorithms produce more competitive outcomes when firms are symmetric, but less when they are very asymmetric. Although the static Nash equilibrium underestimates the effect on total quantity and overestimates the effect on profits, it delivers surprisingly accurate predictions in terms of total welfare. The best description of our results is provided by the equal relative gains solution. In particular, we find algorithms to agree on profits that are on or close to the Pareto frontier for all degrees of asymmetry. Our results suggest that the common belief that symmetric industries are more prone to collusion may no longer hold when algorithms increasingly drive managerial decisions. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07178 |
| By: | Ibáñez Colomo, Pablo |
| Abstract: | Remedies are central in contemporary EU antitrust enforcement. However, they remain relatively misunderstood. Against this background, this article has three main objectives. It seeks, first, to shed light on the nature and purpose of remedial action under Articles 101 and 102 TFEU, with a focus on the European Commission’s activity. The point of intervention, the case law shows, is to bring an infringement effectively to an end. As a matter of positive law, it is unclear that there is room for restorative remedies (that is, remedies that seek to recreate the conditions of competition as they would have existed in the absence of the practice). Second, the article takes a critical perspective on the practice of the past decade. It appears, in particular, that a ‘principles-based approach’ to the administration of remedies is likely to lead to suboptimal outcomes. Finally, some recommendations are outlined so that the letter of the law matches the demands and ambitions of the sort of regulatory-like intervention that is necessary in digital markets and other industries presenting similar features. |
| JEL: | K21 K23 L40 L41 L43 L51 |
| Date: | 2025–01–13 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126537 |
| By: | Ginger Zhe Jin; Mario Leccese; Liad Wagman |
| Abstract: | This chapter examines the multifaceted interactions between top digital platforms and technology ventures across capital, labor, innovation, and product markets. Exploring how venture investments, talent flows, strategic alliances, and competitive behaviors can shape the innovation ecosystem, the chapter highlights both the complementary and competitive dynamics between large incumbents and smaller entrants, and the benefits and potential inefficiencies that may arise from them, as demonstrated by the empirical and theoretical literatures. Throughout, the chapter identifies key areas for research that can support a rigorous evaluation of policy proposals concerning evolving market structures in the digital economy. |
| JEL: | D4 L1 O3 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33370 |
| By: | Gandelman, Néstor; Roldán, Flavia; Viera, Sofía |
| Abstract: | This paper examines the effects of the introduction of mobile number portability (MNP) using data from Uruguay. MNP allows customers to switch mobile providers while retaining their phone number, thereby reducing switching costs and potentially enhancing competition. Our analysis reveals that firms responded by increasing the share of postpaid contracts, partially countering the exogenous reduction in switching costs with new endogenous barriers. We find that while market concentration increased in terms of subscriber share, it decreased for data traffic, reflecting differing customer behaviors and firms' commercial strategies. Additionally, we observed reductions in mobile data prices and an increase in new mobile subscribers, suggesting that MNP contributed to overall market growth. Using a world panel of data prices for the internet we find that MNP is associated with lower prices in the range of 42-50 percent. |
| Keywords: | Mobile number portability;telecommunications;Competition;Switching costs |
| JEL: | L96 L51 D43 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13957 |
| By: | Amedeo Piolatto; Florian Schuett |
| Abstract: | We study the design of online platforms that aggregate information and facilitate trans actions. Leading players in the industry (e.g. the Booking Group) hold two types of platforms in their portfolio: revealing platforms that disclose the identity of transaction partners (like Booking.com) and anonymous platforms that do not (like Hotwire.com). Anonymous plat forms offer discounts but lead to inefficient matching between consumers and firms. We develop a model in which horizontally differentiated firms sell to heterogeneous consumers both directly and via a platform that enlarges the pool of consumers they can attract. The platform charges firms for transactions it intermediates and can choose to offer an anonym ous sales channel in addition to a revealing one. We show that offering both sales channels is profitable not only because it allows the platform to implement price discrimination, as suggested by the literature on opaque selling, but also because it improves rent extraction. The anonymous channel breaks the link between the price on the revealing channel and the firms’ outside option; moreover, it can reduce double marginalisation. The welfare impact of the anonymous channel is ambiguous: while it sometimes leads to market expansion, it also causes inefficiently high transport costs. |
| Date: | 2023–11 |
| URL: | https://d.repec.org/n?u=RePEc:ete:ceswps:746858 |
| By: | Connor Douglas; Foster Provost; Arun Sundararajan |
| Abstract: | Algorithmic agents are used in a variety of competitive decision settings, notably in making pricing decisions in contexts that range from online retail to residential home rentals. Business managers, algorithm designers, legal scholars, and regulators alike are all starting to consider the ramifications of "algorithmic collusion." We study the emergent behavior of multi-armed bandit machine learning algorithms used in situations where agents are competing, but they have no information about the strategic interaction they are engaged in. Using a general-form repeated Prisoner's Dilemma game, agents engage in online learning with no prior model of game structure and no knowledge of competitors' states or actions (e.g., no observation of competing prices). We show that these context-free bandits, with no knowledge of opponents' choices or outcomes, still will consistently learn collusive behavior - what we call "naive collusion." We primarily study this system through an analytical model and examine perturbations to the model through simulations. Our findings have several notable implications for regulators. First, calls to limit algorithms from conditioning on competitors' prices are insufficient to prevent algorithmic collusion. This is a direct result of collusion arising even in the naive setting. Second, symmetry in algorithms can increase collusion potential. This highlights a new, simple mechanism for "hub-and-spoke" algorithmic collusion. A central distributor need not imbue its algorithm with supra-competitive tendencies for apparent collusion to arise; it can simply arise by using certain (common) machine learning algorithms. Finally, we highlight that collusive outcomes depend starkly on the specific algorithm being used, and we highlight market and algorithmic conditions under which it will be unknown a priori whether collusion occurs. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.16574 |
| By: | Jason D. Hartline; Chang Wang; Chenhao Zhang |
| Abstract: | We study the regulation of algorithmic (non-)collusion amongst sellers in dynamic imperfect price competition by auditing their data as introduced by Hartline et al. [2024]. We develop an auditing method that tests whether a seller's pessimistic calibrated regret is low. The pessimistic calibrated regret is the highest calibrated regret of outcomes compatible with the observed data. This method relaxes the previous requirement that a pricing algorithm must use fully-supported price distributions to be auditable. This method is at least as permissive as any auditing method that has a high probability of failing algorithmic outcomes with non-vanishing calibrated regret. Additionally, we strengthen the justification for using vanishing calibrated regret, versus vanishing best-in-hindsight regret, as the non-collusion definition, by showing that even without any side information, the pricing algorithms that only satisfy weaker vanishing best-in-hindsight regret allow an opponent to manipulate them into posting supra-competitive prices. This manipulation cannot be excluded with a non-collusion definition of vanishing best-in-hindsight regret. We motivate and interpret the approach of auditing algorithms from their data as suggesting a per se rule. However, we demonstrate that it is possible for algorithms to pass the audit by pretending to have higher costs than they actually do. For such scenarios, the rule of reason can be applied to bound the range of costs to those that are reasonable for the domain. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.09740 |
| By: | Payal Malik (Indian Council for Research on International Economic Relations (ICRIER)); Nikita Jain; Shiva Kanwar; Bhargavee Das; Saloni Dhadwal |
| Abstract: | Artificial Intelligence (AI) technologies are becoming integral to businesses and public markets alike, enabling innovation and efficiency and creating avenues for economic growth. The emphasis in public discourse has been on the technological advances enabled by AI and the risks and benefits associated with them. It is equally important that discussions on market implications of firm behavior active in AI are also understood. This report explores the evolving market dynamics in India and the critical challenges faced by policymakers and regulators in creating a competitive and innovative AI ecosystem. The report also examines the AI technology stack, highlighting its distinct layers and their implications for industrial organization and market competition. Key themes include the role of major cloud providers in shaping the AI ecosystem, the complexities of open-source models, the expanding network of partnerships between global technology companies, AI startups, and domestic IT incumbents, and the creation of new dependencies. Drawing on global best practices, the report emphasizes the need for a nuanced mix of competition and industrial policies, including a Digital Public Infrastructure paradigm, to foster a competitive, inclusive, and innovative AI ecosystem in India. It also highlights India's push for technological sovereignty through initiatives like the IndiaAI Mission and investments in indigenous AI models and supercomputing capabilities. The recommendations proposed in the report include promoting interoperability, enhancing access to computing resources, strengthening data-governance frameworks while facilitating access to high-quality open datasets, and leveraging public-private partnerships to support emerging AI startups. |
| Keywords: | Artificial Intelligence, Competition Policy, Generative AI, Digital Public Infrastructure, Data Governance, AI Regulation, Prosus, icrier |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:report:25-r-01 |
| By: | Florian Schuett; Chayanin Mipusanawan |
| Abstract: | There is widespread concern about the lack of transparency regard ing standard essential patents (SEPs). This paper examines the pro posal to introduce essentiality checks, a certification scheme for de clared SEPs. We develop a framework that allows us to evaluate how essentiality checks would impact licensing, litigation, and incentives to innovate. In our model, an upstream innovator invests in R&D and privately learns about the likely essentiality of its patents for a standard. The innovator then licenses the patents to a downstream implementer who can contest the essentiality of the patent in court. We identify a tradeoff whereby essentiality checks can reduce litiga tion but also provide excessive incentives for R&D investment. Their overall welfare effect depends on the level of the “fair, reasonable, and non-discriminatory” (FRAND) royalty rate. |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:ete:ceswps:746861 |
| By: | Joel Kariel; Anthony Savagar |
| Abstract: | We develop a theoretical framework to investigate the link between rising scale economies and stagnating productivity. Our model features heterogeneous firms, imperfect competition, and firm selection. We demonstrate that scale economies generated by fixed costs have distinct impacts on aggregate productivity compared to those driven by returns to scale. Using UK data, we estimate long-run increases in both fixed costs and returns to scale. Our model implies that this should increase aggregate productivity through improved firm selection and resource allocation. However, increasing markups can offset the productivity gain. Higher markups cushion low-productivity firms' revenues, allowing them to survive, and constrain firm output, which limits exploitation of scale economies. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.18461 |
| By: | Abada, I.; Ehrenmann, A.; Smeers, Y. |
| Abstract: | The fundamental principle of marginal pricing in electricity markets has been strongly challenged following the recent European energy crisis. One of the main criticisms is the inability of current markets to drive investments, as spot prices provide only short term information about supply, demand, and costs. This paper revisits the seminal work of Boiteux 1960 in the context of the recent energy crisis to discuss the fundamental assumption of adapted capacity, which underpins the equality between long term and short term marginal costs in the theory of marginal pricing. We argue that capacity is no longer adapted to current economic conditions in Europe. We then leverage techniques of mathematical programming to generalize the results of Boiteux 1960 and propose a market clearing mechanism that preserves the efficiency of current short term marginal pricing to induce optimal plants operations while also providing a long term investment signal when capacities are not necessarily adapted. Through an analysis of captured margins, our proposal, which differs only marginally from the current market clearing, identifies plants that should remain in the current mix and those that are no longer economical. We also discuss possible extensions of our proposal to accommodate capacity markets and price caps. Finally, we implement our models with the French power mix and demonstrate their advantages over the current market clearing mechanism using a realistic case study. |
| Keywords: | Marginal Pricing, Power Markets, Duality, Mathematical Programming |
| JEL: | C61 D40 Q41 |
| Date: | 2024–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2453 |
| By: | Payal Malik (Indian Council for Research on International Economic Relations (ICRIER)); Aman Sinha; Harishankar Jagadeesh |
| Abstract: | This policy brief examines the evolution of Indian jurisprudence with regard to the licensing and enforcement of Standard Essential Patents (SEPs). This analysis gains relevance in the context of India's technological ambitions, particularly in mobile phone manufacturing and Internet of Things (IoT). SEPs protect technologies that are part of technical standards which facilitate seamless connectivity across devices and platforms. SEPs are critical to India's smartphone and IoT markets. This brief identifies key legal and economic challenges around SEP licensing, including the balance of power between patent holders and implementers. A review of Indian jurisprudence reveals that courts consistently uphold the rights of SEP holders, while emphasizing the importance of good-faith negotiations and constructive engagement by implementers in licensing discussions. Our preliminary findings suggest that, while the Indian judiciary is becoming increasingly adept at navigating SEP disputes, some guidelines or a special mechanism for startups to enforce their IPR may be required to encourage smaller innovators to participate in the intellectual property ecosystem. This brief aims to inform policymakers, technocrats, and legal professionals about the critical intersections of law, economics, and technology involved in shaping India's SEP licensing and enforcement framework. |
| Keywords: | Intellectual Property Rights, Technology Standards, Cellular Standards, Standard Essential Patents, FRAND Licensing, Indian Patent Law, Indian IPR Jurisprudence, Innovation Ecosystem, icrier |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:ppaper:30 |
| By: | Simshauser, P. |
| Abstract: | Decarbonising Australia's power system requires high market shares of variable renewable energy. An important policy initiative to achieve this is the establishment of Renewable Energy Zones (REZs). As renewable market share increases, spilled energy within REZs is predictable. Spilled energy occurs due to high peak-to-average output ratios of intermittent renewables (being ~3:1), largely inelastic aggregate final electricity demand, and the economic limits of REZ network transfer capacity. In an open access, multi-zonal market setup, an intuitive response by policymakers may be to undertake connection reform (i.e. priority access) and underwrite storage assets to alleviate the worst effects of spilled energy. Prima facie, spilled energy and lines congestion may be reduced, and wind and solar capacity increased, through the deployment of battery storage. However, as model results in this article reveal, priority access makes multi-zonal markets more sensitive to spilled energy, and competitive batteries within a REZ aggravates congestion. Further, early entrant batteries may oversize their MW capacity and crowd-out renewables. All these cases harm welfare within a REZ. Optimally sized coordinated 'portfolio' batteries alleviate congestion because they don't compete for scarce REZ transfer capacity. Rival batteries should be located outside REZs. |
| Keywords: | Renewable Energy Zones, Renewables, Spilled Energy, Marginal Curtailment, Battery Storage |
| JEL: | D52 D53 G12 L94 Q40 |
| Date: | 2024–12–18 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2475 |
| By: | Hennicke, Moritz |
| Abstract: | I study the impact on workers of restructuring communist firms during the transition to capitalism. Drawing on close to the universe of communist state-owned enterprises under the authority of the German privatization agency in the 1990ies, I am able to link firms across industries and districts to workers and their labor market outcomes before and after exposure to firm restructuring. I study effects of two treatments: First, I find that the advent of market competition through firm closures by the privatization agency increases unemployment. Second, I estimate that the genesis of private ownership in the form of privatizations lowers household income and well-being of workers. To explore the role of ownership, I conduct event studies at the firm level and find that privatized firms downsize compared to firms remaining state-owned. Building a conceptual framework on the idea that the transition implied large temporary uncertainties, the shrinking of privatized firms might have followed from a higher desire by private owners to reduce exposure to risk as opposed to the state. |
| Date: | 2023–04–27 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:jext7 |