nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒04‒02
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Quantifying the Gap between Equilibrium and Optimum Under Monopolistic Competition By Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum
  2. Bid rigging and entry deterrence in public procurement: Evidence from an investigation into collusion and corruption in Quebec By Robert Clark; decio Coviello; Jean-Francois Gauthier; Art Shneyerov

  1. By: Kristian Behrens (National Research University Higher School of Economics); Giordano Mion (University of Sussex); Yasusada Murata (National Research University Higher School of Economics); Jens Suedekum (Heinrich-Heine-Universitat Dusseldorf)
    Abstract: Equilibria and optima generally differ in imperfectly competitive markets. While this is well understood theoretically, it is unclear how large the welfare distortions are in the aggregate economy. Do they matter quantitatively? To answer this question, we develop a multi-sector monopolistic competition model with endogenous firm entry and selection, productivity, and markups. Using French and British data, we quantify the gap between the equilibrium and optimal allocations. In our preferred specification, inefficiencies in the labor allocation and entry between sectors, as well as inefficient selection and output per firm within sectors, generate welfare losses of about 6–10% of GDP.
    Keywords: monopolistic competition; welfare distortions; equilibrium versus optimum; inefficient entry and selection; inter- and intra-sectoral allocations
    JEL: D43 D50 L13
    Date: 2018
  2. By: Robert Clark (Queen's University); decio Coviello (HEC Montreal); Jean-Francois Gauthier (Boston College); Art Shneyerov (Concordia University)
    Abstract: We study the impact of an investigation into collusion and corruption to learn about the organization of cartels in public procurement auctions. Our focus is on Montreal’s asphalt industry, where there have been allegations of bid rigging, market segmentation, complementary bidding and bribes to bureaucrats, and where, in 2009, a police investigation was launched. We collect procurement data and use a difference-in-difference approach to compare outcomes before and after the investigation in Montreal and in Quebec City, where there have been no allegations of collusion or corruption. We find that entry and participation increased, and that the price of procurement decreased. We then decompose the price decrease to quantify the importance of two aspects of cartel organization, coordination and entry deterrence, for collusive pricing. We find that the latter explains only a small part of the decrease.
    Keywords: Collusion, Corruption, Bid rigging, Entry deterrence
    JEL: L22 L74 D44 H57
    Date: 2018–02

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