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on Industrial Competition |
| By: | Stéphane Caprice; Shiva Shekhar |
| Abstract: | In this paper, we study supplier encroachment in competition with multi-product retailers and its effects on retail profits under endogenous consumer shopping behavior. We find that supplier encroachment (weakly) increases both supplier and retailer profits, as the retailer benefits from better consumer segmentation and price discrimination despite (weakly) higher wholesale prices. The effect of encroachment on consumers is more nuanced: when the competitive product’s value is high, consumers benefit. Instead, when the value of the competitive product is low, consumers buying exclusively from the multi-product retailer are worse off while consumers who mix and match across stores are better off. Overall, supplier encroachment can improve market outcomes if the value of the supplier’s product offering is sufficiently high. |
| Keywords: | supplier encroachment, vertical contracting, downstream competition, consumer shopping costs. |
| JEL: | L13 L22 L42 L81 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11767 |
| By: | Shiva Shekhar; Radostina Shopova |
| Abstract: | We study the welfare effects of a merger between ad-funded platforms facing elastic consumer demand. We show that advertising fees as well as quality investment levels by the platforms fall post-merger. Interestingly, despite the lower advertising fees, advertisers may be worse off when their value of interacting with consumers is high enough. The intuition for this result is that the decrease in quality investments post-merger reduces overall consumer participation. Thus, studying innovation incentives is important in these ad-funded markets as the well-known surplus see-saw result may not hold making both sides of the markets worse while the merged entity emerges as the sole winner. |
| Keywords: | Ad-funded platforms, two-sided markets, horizontal mergers, innovation, quality. |
| JEL: | D42 D43 L12 L13 L22 L86 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11768 |
| By: | Leone, Fabrizio; Macchiavello, Rocco; Reed, Tristan |
| Abstract: | Prices for several intermediate inputs, including cement, are higher in developIng economies—particularly in Africa. Combining recent data from the International Comparison Program with a global directory of cement firms we estimate an industry equilibrium model to distinguish between drivers of international price dispersion: demand, costs, conduct, and entry. Developing economies feature both higher marginal costs and higher markups. African markets are not characterized by less competitive conduct and, if anything, feature lower barriers to entry. The small size of many national markets, however, limits entry and competition and explains most of the higher markups and prices. Policy implications are discussed. |
| Keywords: | international price dispersion; market power; market-size; cement; Africa |
| JEL: | D24 L13 L61 O14 |
| Date: | 2025–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123004 |
| By: | Perez-Reyna, David; Rodríguez Barraquer, Tomás; Tovar, Jorge |
| Abstract: | In this paper, we analyze the competition in the Colombian banking sector using bank-level monthly balance sheet information. We estimate the changes in measures of market power due to the exogenous introduction of a liquidity regulation. Our results suggest that introducing a net stable funding ratio increased the Lerner index in the short term, thus signaling a higher exercise of market power. We rationalize these changes in a simple theoretical model that allows us to analyze the tightening of liquidity requirements for banks. Our empirical results are consistent with banks with higher market power in the loan market than in the deposit market. |
| Keywords: | Competition;Banking sector;Liquidity regulation |
| JEL: | E44 G21 L13 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14045 |
| By: | Chongwoo Choe; Jiajia Cong; Noriaki Matsushima; Shiva Shekhar |
| Abstract: | Privacy regulations like the General Data Protection Regulation aim to empower consumers with greater transparency and control over their personal data. In response, firms may exercise price discrimination in the form of versioning. This paper studies how these two aspects of privacy regulation—consumer empowerment and versioning—affect market outcomes and welfare. We develop a model where firms earn revenue from sales of service and data monetization, and consumers differ in their preferences for the service and privacy costs incurred when sharing data with the firm. In a monopoly, the firm is better off after regulation because its ability to price discriminate outweighs the effects of increased consumer empowerment. In a duopoly, however, greater consumer choice after regulation intensifies competition, as firms have more ways to deviate from mutually beneficial outcomes. This results in the firm with more data monetization earning smaller profit, while the firm with less data monetization earns larger profit. However, the industry profit as a whole decreases and consumer surplus increases after the regulation. Therefore, the regulation’s impact is nuanced and depends on the market structure. We also examine the regulatory impact on firms’ optimal data-driven revenue models and market entry. |
| Keywords: | privacy regulation, privacy management, versioning, monopoly, competition. |
| JEL: | D18 D61 K24 L12 L51 L86 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11769 |
| By: | Fabrizio Leone; Rocco Macchiavello; Josepa Miquel-Florensa; Nicola Pavanini |
| Abstract: | Widespread market imperfections in agricultural value chains raise the possibility that regulatory interventions may enhance efficiency and farmers’ welfare. We develop a structural model of agricultural value chains and estimate it using rich data from Costa Rica’s coffee sector to evaluate common regulations. Farmers supply differentiated mills that strategically decide which rural markets to source from and bilaterally bargain prices with downstream exporters. Through counterfactuals, our analysis highlights the nuanced, and potentially counter-productive, effects of commonly observed pro-competitive regulations on farmers’ welfare. Tightening revenue-sharing rules to increase farm-gate prices, increases farmers’ welfare on average but makes many worse off. Similarly, banning vertical integration raises farm-gate prices but harms most farmers by lowering valuable services provided by integrated mills. |
| Keywords: | agricultural chains, market structure, farmers’ welfare |
| JEL: | O12 Q13 L22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11776 |
| By: | De Monte, Enrico; Koebel, Bertrand M. |
| Abstract: | This paper characterizes the short- and long-run Cournot equilibrium with heterogeneous firms and stochastic technological change. In our model, firms have different technologies with heterogeneous fixed and variable costs and various degrees of markups. In a framework with homogeneous firms, Mankiw and Whinston (1986) show that the long-run Cournot equilibrium may be inefficient due to too many entries. We extend their result to the case of heterogeneous firms and show that higher industrial concentration of production is welfare improving. Using administrative data for French manufacturing firms, we estimate a wide degree of unobserved heterogeneity in both fixed and variable costs, and find a negative correlation between both. Our simulation results show that markups surprisingly only induce slight inefficiencies in the allocation of output, implying that it is almost compatible with welfare maximisation. Instead, firms' choice to employ heterogeneous and often inefficient technologies turns out to harm more substantially welfare and aggregate output. |
| Keywords: | cost function, fixed cost, marginal cost, returns to scale, technological change, misallocation, markups, nonlinear least squares, panel data |
| JEL: | C33 L11 L60 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:312579 |
| By: | Christos Genakos; Mario Pagliero; Lorien Sabatino; Tommaso Valletti |
| Abstract: | Fixed book price (FBP) agreements are a form of resale price maintenance applied to books in various countries. FBP restricts retail price competition with the aim of promoting book production variety. Yet, despite its popularity and adoption in many countries, there is no empirical evidence on its effects. We offer systematic evidence on the impact of FBP on book variety and prices using a detailed new dataset from Italy that includes the universe of books published and bought, before and after the introduction of FBP. Our results indicate that FBP raises prices without significantly affecting the number of new books published in the marketplace. However, it also increases considerably the variety of books actually bought, especially from independent bookstores. We estimate a structural model of demand that accounts for both effects, finding that consumers overall benefited from the regulation. |
| Keywords: | cultural goods, resale price maintenance, book market, ex-post policy evaluation |
| Date: | 2025–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2085 |
| By: | R S, Vaidyanathan; Keswani Mehra, Meeta |
| Abstract: | This paper presents an analytical model that investigates the dynamics of rent-seeking, innovation, and entry policies in a two-sector economy characterized by skilled and unskilled labor. The model explores how incumbent firms in an intermediate goods sector react to the threat of new entrants and how rent-seeking behavior influences innovation and economic productivity. A key feature of the model is the role of a policymaker who sets firm entry policies and responds to bribes offered by incumbent firms seeking to restrict market entry. The analysis distinguishes between advanced and backward incumbent firms. Advanced firms, which operate at the frontier of technological productivity, choose to innovate to retain their competitive position in response to entry threats. In contrast, backward firms face higher barriers to innovation and are more likely to bribe policymakers to deter new competition. The magnitude of the bribes depends on the difference in profits with and without entry threats, as well as the costs of innovation. The model highlights how rent-seeking by backward firms distorts market competition, leading to suboptimal innovation and lower aggregate productivity in the skilled sector. Policymakers, balancing between maximizing bribes and addressing wage inequality, face conflicting incentives. If a policymaker prioritizes welfare, they may restrict entry to reduce wage inequality, thereby lowering competitive pressures and innovation. Alternatively, a policymaker focused on maximizing bribes may encourage higher entry threats, fostering innovation but exacerbating income inequality. This paper contributes to the literature on rent-seeking and economic growth by providing a nuanced understanding of how firm behavior, entry policies, and innovation are interlinked, with important implications for labor markets and income inequality. The model provides insights into the broader economic consequences of rent-seeking behavior and entry regulation, emphasizing the need for balanced policies that encourage innovation while minimizing economic distortions caused by rent-seeking activities. |
| Keywords: | Keywords: Lobbying, Market Structure, R\&D Investment, Growth, Welfare |
| JEL: | H11 I31 O32 O41 P00 |
| Date: | 2025–03–20 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124087 |
| By: | Halvarsson, Daniel (Ratio Institute); Korpi, Martin (Ratio Institute & EHFF, Stockholm School of Economics) |
| Abstract: | This study investigates the relationship between the urban wage premium and employer concentration using Swedish full population employer-employee data. Departing from an AKM modeling framework to distinguish worker from firm specific heterogeneity – a measure of rent-sharing – we then measure the urban wage premium using differences in the estimated firm fixed effects at the level of local industries, nested within local labor markets. Our results suggest that labor market employer concentration, as calculated using the Hirschman-Herfindahl index and a leave-one-out instrumental variable design, can account for a significant share of the estimated urban wage premium (UWP). Addressing city-level wage income inequality by applying our model to different segments of the local labor market income distribution, we find that while the UWP pertains to all income segments, it is largest for top-income levels (above the 90th percentile), and within this segment employer concentration also has the largest explanatory power. Thus, while being an important explanatory factor for all percentiles of the local income distribution, a relatively lower employer concentration within larger cities, and vice versa, higher concentration within smaller cities, primarily help explain the variance of top wages within these cities/labor markets. |
| Keywords: | wage distribution; rent sharing; monopsony; linked employer-employee data; local labor markets |
| JEL: | D22 J31 J42 R12 |
| Date: | 2025–04–23 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:ifauwp:2025_004 |
| By: | MATSUURA Toshiyuki; SAITO Hisamitsu |
| Abstract: | Using Japanese plant product-level data, this study focuses on the impact of increasing import competition pressure on changes in product portfolios by examining product entry and exit. We also consider the role of R&D activities at the plant level. While previous research on the adjustment of product portfolios for multi-product firms has emphasized the narrowing of products to core products, we show that firms engaged in R&D activities actively replace existing products with new ones and expand into new business fields due to increased import competition. These results are consistent with those of several studies on the relationship between competition and innovation. We also find that these effects are more pronounced in regions with larger public R&D stocks and in high-tech sectors. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25020 |
| By: | Tello, Mario D.; Tello-Trillo, Daniel Sebastian; Rojas Lara, Pablo Enrique |
| Abstract: | This paper uses seven standard market power indicators (price-cost margin, and six drawn upon the production approach) to estimate the effect market power on the rate of change of total factor productivity for a sample of formal manufacturing firms of Peru for the period 2002-2019. After applying exogeneity tests and implementing panel data with fixed effects instrumental variable method, the results are not clear about the causal relationship between market power and firms' TFP. However, when the Double-Debiased machine learning (DML) causal method is applied for fixed effects panel data with and without instruments, firms market power robustly seems not to affect their respective total factor productivity regardless of the market power indicators and instruments used. The paper also presents four examples which are consistent with this causal result suggesting that the relationship between market power and productivity needs to be analyzed on a case-by-case basis considering the product development of sectors, the influence and activities of firms and economic groups in the domestic economy and foreign markets, and the level of development of the country's productive structure. |
| Keywords: | Market power;total factor productivity;Causal machine learning |
| JEL: | D24 L11 L60 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14044 |
| By: | Córdoba Solano, Daniela; Gomez-Trejos, Felipe; Vindas Quesada, Alberto |
| Abstract: | Research about trade liberalization's impact on markups has focused on manufacturing due to data availability considerations. How do these effects vary across sectors? Which industries become more and less competitive as trade barriers are eliminated? We leverage firm-level tax records from the universe of formal-sector businesses in Costa Rica with the 2009 trade liberalization as a natural experiment to evaluate its industry-specific effects on markups across all industries. We find negative effects on markups in agriculture, mining, electricity, water supply, and business services. Alternatively, the reform led to markup increases in accommodations and food services, information and communications, real estate, finance and insurance, and education, health, and social work. We do not observe statistically significant effects in manufacturing, transportation and storage, construction, and wholesale and retail trade. Our findings represent a more comprehensive evaluation of the potential pro-competitive effects from trade liberalization than existing studies exclusively focusing on manufacturing firms. |
| JEL: | D22 L11 F13 F14 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14003 |