|
on Industrial Organization |
|
Issue of 2019‒04‒01
six papers chosen by |
| By: | Bataille, Marc; Bodnar, Olivia; Steinmetz, Alexander; Thorwarth, Susanne |
| Abstract: | While markets have been liberalized all over the world, incumbents often still hold a dominant position, e.g. on energy markets. Thus, wholesale electricity markets are subject to market surveillance. Nevertheless, consolidated findings on abusive practices of market power and their cause and effect in these markets are scarce and non-controversial market monitoring practices fail to exist. Right now, the Residual Supply Index (RSI) is the most important instrument for market monitoring. However, a major drawback of this index is its focus on just one specific aspect of market power in wholesale electricity markets whereas different consequences of market power are possible. Hence, markets could be distorted in several ways and we propose the 'Return on Withholding Capacity Index' (RWC) as a complementary index to the RSI. The index is a measure of the firms' incentive to withhold capacity. The benefits and practicability of the RWC is shown by an application on data for the German-Austrian electricity wholesale market in 2016. |
| Keywords: | Market Power,Electric Power Markets,Residual Supply Index |
| JEL: | L11 L43 L94 K23 C13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:311&r=all |
| By: | De Ridder, M. |
| Abstract: | Productivity growth has stagnated over the past decade. This paper argues that the rise of intangible inputs (such as information technology) can cause a slowdown of growth through the effect it has on production and competition. I hypothesize that intangibles create a shift from variable costs to endogenous fixed costs, and use a new measure to show that the share of fixed costs in total costs rises when firms increase ICT and software investments. I then develop a quantitative framework in which intangibles reduce marginal costs and endogenously raise fixed costs, which gives firms with low adoption costs a competitive advantage. This advantage can be used to deter other firms from entering new markets and from developing higher quality products. Paradoxically, the presence of firms with high levels of intangibles can therefore reduce the rate of creative destruction and innovation. I calibrate the model using administrative data on the universe of French firms and find that, after initially boosting productivity, the rise of intangibles causes a 0.6 percentage point decline in long-term productivity growth. The model further predicts a decline in business dynamism, a fall in the labor share and an increase in markups, though markups overstate the increase in firm profits. |
| Keywords: | Business Dynamism, Growth, Intangibles, Productivity, Market Power |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1931&r=all |
| By: | Yiwei Dou; Geng Li; Joshua Ronen |
| Abstract: | We study the unintended consequences of consumer financial regulations, focusing on the CARD Act, which restricts consumer credit card issuers’ ability to raise interest rates. We estimate the competitive responsiveness-the degree to which a credit card issuer changes offered interest rates in response to changes in interest rates offered by its competitors-as a measure of competition in the credit card market. Using small business card offers, which are not subject to the Act, as a control group, we find a significant decline in the competitive responsiveness after the Act. The decline in responsiveness is more pronounced for competitors’ reductions, as opposed to increases, in interest rates, and is more pronounced in areas with more subprime borrowers. The reduced competition underscores the potential unintended consequence of regulating the consumer credit market and contributes toward a more comprehensive and balanced evaluation of the costs and benefits of consumer financial regulations. |
| Keywords: | CARD Act ; Competitive responsiveness ; Credit card market ; Regulations |
| JEL: | L51 G21 E51 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-18&r=all |
| By: | Massimo Motta; Martin Peitz |
| Abstract: | The proposal to relax EU merger control to allow for anti-competitive 􀇲European Champions􀇳 may lead policy makers to update current merger control. While we see little merit in this specific proposal, we recommend a revision that goes into a different direction and, in particular, addresses mergers of potential competitors and the burden of proof. Thus, our proposal aims at the EC addressing problems of under-enforcement and making better-informed decisions. However, we would find it sensible to introduce in the Merger Regulation a clause whereby in exceptional and well-defined cases a merger, which would otherwise pass muster on competition grounds, may be prohibited due to defence, strategic and security of supply considerations. |
| Keywords: | Merger policy, European Union, potential competitor, safe harbour, national champion |
| JEL: | K21 L41 L52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_077&r=all |
| By: | McAdam, Peter; Petroulakis, Filippos; Vansteenkiste, Isabel; Cavalleri, Maria Chiara; Eliet, Alice; Soares, Ana |
| Abstract: | We examine the degree of market power in the big four countries of the euro area using macro and firm-micro data. We focus on three main indicators of market power in and across countries: namely, the concentration ratios, the markup and the degree of economic dynamism. For the macro database we use the sectoral data of KLEMs and for the micro data we use a combination of Orbis and iBACH (dating from 2006 onwards). We find that, in contrast to the situation in the US, market power metrics have been relatively stable over recent years and – in terms of the markup specifically – marginally trending down since the late 1990s, driven largely by Manufacturing. In terms of the debate as to the merits of market concentration, we find (relying on results for Manufacturing) that firms in sectors which exhibit high concentration, but are categorized as ‘high tech’ users, generally have higher TFP growth rates. By contrast, markups tend to display a bi-modal distribution when looked at through the lens of high concentration and high tech usage. These results would tend to confirm that the rise in market power documented for other economies is not obviously a euro area phenomenon and that welfare and policy analysis of market concentration is inevitably complex. JEL Classification: D2, D4, N1, O3 |
| Keywords: | euro area, market power, micro-macro data |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192253&r=all |
| By: | Neuhäusler, Peter; Rothengatter, Oliver; Frietsch, Rainer |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:efisdi:42019&r=all |