|
on Industrial Competition |
| By: | Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Michael C. Wang (Yale University) |
| Abstract: | We analyze how market segmentation affects consumer welfare when a monopolist can engage in both second-degree price discrimination (through product differentiation) and third-degree price discrimination (through market segmentation). We characterize the consumer-optimal market segmentation and show that it has several striking properties: (1) the market segmentation displays monotonicityÑhigher-value customers always receive higher quality product than lower-value regardless of their segment and across any segment; and (2) when aggregate demand elasticity exceeds a threshold determined by marginal costs, no segmentation maximizes consumer surplus. Our results demonstrate that strategic market segmentation can benefit consumers even when it enables price discrimination, but these benefits depend critically on demand elasticities and cost structures. The findings have implications for regulatory policy regarding price discrimination and market segmentation practices. |
| Date: | 2024–12–22 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2420 |
| By: | Cao, Yiran; Lin, ping; Zhang, Tianle |
| Abstract: | Incumbent firms may acquire start-ups to eliminate potential competition without intending to develop new technology (killer acquisitions). We develop a model to examine the incentives and welfare implications of killer acquisitions under different market structures: vertical separation and integration. Our model focuses on the competition between an upstream incumbent firm and a start-up with the potential to develop superior technology, where the incumbent has the option to acquire the start-up and decide whether to continue the development of the superior technology. We find that killer acquisitions are more likely when the cost of developing the superior technology is moderate under both vertical separation and integration. However, these acquisitions lead to a welfare loss only when the development cost is relatively low. Comparing vertical integration to separation, the probability of killer acquisition is higher (lower) when the incumbent firm has a greater (smaller) chance of successfully developing the superior technology. |
| Keywords: | innovation incentive, killer acquisitions, vertical integration. |
| JEL: | D8 L1 |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123344 |
| By: | David P. Myatt (London Business School); David Ronayne (ESMT Berlin) |
| Abstract: | We study markets in which potential buyers engage in costly search to find a good deal. Our novel solution concept for prices builds upon the idea that any movement in a firm's price is followed by an opportunity for its competitors to respond with special offers. This mechanism selects the highest prices such that no firm wishes to undercut a competitor. We identify a distinctive closed-form pattern of disperse prices that uniquely satisfy our pricing solution, and pair that price profile with optimal fixed-sample search. In a stable equilibrium with active search, the intensity of search and consumer surplus are lower and industry profit is higher with more competitors. In a concentrated oligopoly, complete search in equilibrium can eliminate industry profit. |
| Date: | 2025–01–28 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:524 |
| By: | Simon Mongey; Michael E. Waugh |
| Abstract: | This paper studies household inequality and product market power in dynamic, general equilibrium. In our model, households’ price elasticities of demand endogenously vary with wealth. Heterogeneous firms set their price as oligopolistic competitors given the endogenous distribution of demand. A firm’s market power varies with the distribution of demand as households with different elasticities sort into high- and low-price varieties. Under standard preferences, larger firms’ products are more appealing, sell at higher prices, to more households, and a relatively richer customer base, face less elastic demand, and set higher markups. Quantitatively (a) our model rationalizes a wide set of recent empirical studies in the cross-section of households and firms, (b) we find household heterogeneity to be a dominant source of markup variation across firms, and (c) a one-time fiscal transfer of one percent of GDP to households leads to a 0.3 percentage point increase in the aggregate markup. |
| JEL: | E0 E27 E3 E60 L0 L10 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33399 |
| By: | Saglam, Ismail |
| Abstract: | In this paper, we study price stickiness in a dual-channel supply chain where a single manufacturer sells its product through an online channel and a retailer. We construct a noncooperative game where the manufacturer and the retailer decide on whether or not to costlessly adjust their prices after a demand shock. If the demand shock is positive, then the Nash equilibrium is always unique and non-sticky. If the demand shock is negative, then there exist Nash equilibria where some prices are sticky. Moreover, no Nash equilibrium is always Pareto optimal, pointing to the possibility of the Prisoner's Dilemma. |
| Keywords: | Supply chain; price adjustment; price stickiness. |
| JEL: | D43 L11 L13 |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123409 |
| By: | Wong, Sara; Petreski, Marjan |
| Abstract: | This paper investigates the effects of competition laws and regulations on manufacturing firms productivity in Latin American countries (LACs), addressing a gap in existing research. Leveraging firm-level panel data from the World Bank Enterprise Surveys across 14 LAC economies and competition law indicators from the Comparative Competition Law initiative, the study employs total factor productivity (TFP) measures to analyze the effects of competition laws on manufacturing productivity through key mediators: firm size, distance to the frontier, and broader institutional arrangements. Utilizing various empirical methodologies that address potential biases, the findings reveal a nuanced relationship between competition law stringency, enforcement practices, and productivity outcomes across different industries and countries. Results reveal heterogeneous effects of competition law and enforcement on productivity, with certain aspects showing a positive relationship with productivity, particularly when controlling for firm size, while stronger enforcement measures weaken the positive association between competition law and productivity, potentially due to increased compliance costs and legal uncertainty. The study suggests a need for policymakers to strike a balance between regulatory stringency and enforcement in competition to avoid stifling innovation and hindering productivity growth, particularly in industries nearing technological frontiers. Accounting for industry-specific factors are essential for fostering fair competition and market efficiency without unduly burdening businesses. |
| Keywords: | Competition law and regulations;Firm productivity;Enforcement |
| JEL: | K21 L11 O54 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13963 |
| By: | Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan |
| Abstract: | This paper presents new evidence on the growing scale of large businesses in the United States, Japan and 11 European countries. It documents a broad increase in industry concentration across the majority of countries and sectors over the period 2002–2017. The rising concentration is strongly linked to investment in intangibles—particularly innovative assets; and software and data—and this relationship is magnified in more globalised industries. The results are consistent with intangibles disproportionately benefiting large firms, enabling them to scale up and increase their market shares by leveraging intangibles across multiple markets. |
| Keywords: | intangible investment; business groups; concentration |
| JEL: | J1 C1 |
| Date: | 2025–01–27 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126673 |
| By: | Kambayashi, Ryo (Musashi University); Kawaguchi, Kohei (Hong Kong University of Science & Technology); Otani, Suguru (University of Tokyo) |
| Abstract: | This study estimates and decomposes recruitment elasticity, a key measure of employer market power, across job-matching stages using data from Japan's largest job-matching intermediary. On average, recruitment elasticity is negative but not statistically significantly different from zero. However, this masks heterogeneity across stages. The negative elasticity arises from lower-wage workers avoiding higher-wage vacancies during inquiry. Posted wages positively influence application, interview attendance, and offer acceptance decisions, with elasticity decreasing in that order. Other important patterns are also examined. |
| Keywords: | market power of employers, monopsony, job matching intermediary, recruitment elasticity, inquiry, application, interview, offer, control function approach |
| JEL: | J20 J30 J42 J64 L13 L40 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17613 |
| By: | Teddy Mekonnen |
| Abstract: | I consider a two-sided frictional search market where buyers search and match to vertically differentiated sellers. The market is segmented into submarkets based on seller types, with segmentation serving as a public signal that directs buyers' search. I characterize the socially efficient and equilibrium allocations of buyers across submarkets for any fixed segmentation, and identify a Hosios condition under which the equilibrium allocation is efficient. I further examine the design of surplus-maximizing segmentations, demonstrating the role of congestion externalities in determining whether the constrained-efficient segmentation fully reveals seller types or pools types into at most a binary partition. These results clarify the conditions under which the provision of public information is welfare enhancing in search markets with externalities. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.11753 |
| By: | Imke Reimers; Christoph Riedl; Joel Waldfogel |
| Abstract: | Differentiated product consumption choices made without full information can lead to welfare losses from regret and missed opportunities, but a lack of post-purchase usage data has prevented their exploration. Using novel data on individual ownership and post-purchase usage of video games, we explore both the potential welfare benefits of full information prior to purchase and the ability of contemporary prediction technology to produce these gains. We find large potential gains: Among currently owned games, fully informed consumers could achieve 90 percent of their status quo playtime with 40 percent of current expenditure; and current expenditure reallocated among all available games could double status quo playtime. We develop a tractable model of consumer choice among bundles based on hours of playtime relative to overall spending, which we implement using both a Cobb Douglas calibration and a logit model of bundle choice. Full information would raise consumer surplus by more than the value of status quo expenditure; and it would reduce expenditure by half. Consumers heeding sophisticated, personalized predictions would obtain roughly 40 percent of these welfare benefits with a fifth less spending. |
| JEL: | L15 L82 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33401 |
| By: | Gorkem Celik (ESSEC); Strausz Roland (HU Berlin) |
| Abstract: | We study monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller's private information. As an acquistion device, certification discloses hard information about the good's quality. Despite being costless, we show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information. |
| Keywords: | certification; disclosure; screening; information acquisition; monopolistic distortions; |
| JEL: | D82 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:525 |
| By: | Allan, Corey; Maré, David C. (Motu Economic and Public Policy Research Trust); Hyslop, Dean R. (Motu Economic and Public Policy Research Trust) |
| Abstract: | We examine employer monopsony power in the New Zealand private sector labour market. New Zealand has a small, geographically dispersed population, meaning that outside employment options for workers may be limited. However, New Zealand is generally considered to have a flexible labour market with large gross labour market flows. Using firm and individual level microdata from StatsNZ's Longitudinal Business Database (LBD) and Integrated Data Infrastructure (IDI), we estimate monopsony power based on separation elasticities, on the estimated marginal product-wage wedge, and by direct estimation of firm-level labour supply elasticities. Estimates based on separation elasticities and the marginal product-wage wedge are reasonably consistent, with an implied wage markdown of at most 25%, on average. Direct estimates of labour supply elasticities are sensitive to small changes in specification, highlighting the identification difficulties. Our estimates based on separation elasticities and marginal product-wage wedges are broadly consistent with recent international evidence. These results suggest the presence of employer monopsony power in New Zealand's private sector, although the extent of that power may be limited. |
| Keywords: | monopsony, wage setting, worker mobility |
| JEL: | J42 J63 M50 D20 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17614 |
| By: | Luis Guijarro; Jos\'e-Ram\'on Vidal; Vicent Pla |
| Abstract: | We model a market for data where an incumbent and a challenger compete for data from a producer. The incumbent has access to an exclusive data producer, and it uses this exclusive access, together with economies of scope in the aggregation of the data, as a strategy against the potential entry by the challenger. We assess the incumbent incentives to either deter or accommodate the entry of the challenger. We show that the incumbent will accommodate when the exclusive access is costly and when the economies of scope are low, and it will blockade or deter otherwise. The results would justify an access regulation that incentivizes the entry of the challenger, e.g., by increasing production costs for the exclusive data. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07235 |
| By: | Paul L. E. Grieco; Charles Murry; Joris Pinkse; Stephan Sagl |
| Abstract: | We propose a conformant likelihood estimator with exogeneity restrictions (CLEER) for random coefficients discrete choice demand models that is applicable in a broad range of data settings. It combines the likelihoods of two mixed logit estimators—one for consumer level data, and one for product level data—with product level exogeneity restrictions. Our estimator is both efficient and conformant: its rates of convergence will be the fastest possible given the variation available in the data. The researcher does not need to pre-test or adjust the estimator and the inference procedure is valid across a wide variety of scenarios. Moreover, it can be tractably applied to large datasets. We illustrate the features of our estimator by comparing it to alternatives in the literature. |
| JEL: | C13 C18 L0 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33397 |