nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒11‒02
eleven papers chosen by

  1. Asymmetric general oligopolistic equilibrium By Quint, Ansgar F.; Rudsinske, Jonas F.
  2. Competition, Profit Share and Concentration By J. BOUSSARD; R. LEE
  3. Passive backward acquisitions and downstream collusion By Shekhar, Shiva; Thomes, Tim Paul
  4. Complementary bidding and the collusive arrangement: Evidence from an antitrust investigation By Clark, Robert; Coviello, Decio; de Leverano, Adriano
  5. Product switching, market power and distance to core competency By R. MONIN; M. SUAREZ CASTILLO
  6. Fixed Costs and the Division of Labor By Zhou, Haiwen
  7. Dynamic Competition for Attention By Jan Knoepfle
  8. Open data and data sharing: An economic analysis By Krotova, Alevtina; Mertens, Armin; Scheufen, Marc
  9. International trade and tax-motivated transfer pricing By Quint, Ansgar F.; Rudsinske, Jonas F.
  10. Does Open Source Pay off in the Plug-in Hybrid and Electric Vehicle Industry? A Study of Tesla's Open-Source Initiative By Yihan Yan
  11. Concentration of the Mobile Telecommunications Markets and Countries' Competitiveness By David Bardey; Danilo Aristizábal; Bibiana Sáenz; Santiago Gómez

  1. By: Quint, Ansgar F.; Rudsinske, Jonas F.
    Abstract: We develop an asymmetric general oligopolistic equilibrium (AGOLE) model, which extends the range of possible applications in general oligopolistic equilibrium modelling. The AGOLE allows to incorporate endogenous and asymmetric marginal utilities of income across countries.As a first exemplary application, we analyze the effects of asymmetric labor market policies. When one country increases its labor supply per capita, it is optimal for its firms to supply a part of the additional production to the other country at reduced prices to artificially inflate domestic prices. This results in a spillover effect letting consumption increase abroad due to a change in the terms of trade. In AGOLE, oligopolistic competition can induce asymmetric price reactions that shift real income and demand between the two countries. We argue that incorporating this cross-country demand channel is crucial for analyzing asymmetric countries or policies in presence of firms with market power.
    Keywords: general oligopolistic equilibrium,strategic trade,international trade and labor market interactions,factor income distribution
    JEL: F12 D51 L13 F16 D33
    Date: 2020
  2. By: J. BOUSSARD (Banque de France); R. LEE (Insee- Crest)
    Abstract: This paper investigates the distributional impact of ’winner-takes-most’ competition and its role in shaping recent macroeconomic trends in advanced economies. We document a positive correlation between variations in industry labor and capital shares, and a positive correlation between variations in industry profit shares and industry concentration levels. However using micro-based industry data on firm-level profit margins, we find a negative correlation between industry concentration and a wide range of moments from the distribution of profit shares. We propose a dynamic general equilibrium model with heterogeneous firms, in which an increase in competition, whereby consumers become more price-sensitive and firm markups decrease, leads to a rise in concentration, a decrease in firm-level profit shares but an increase in industry-level profit shares. We study the effect of a change in the competitive environment on the Balanced Growth Path (BGP). In contrast with representative firm models, competition reduces the probability of successful entry and product diversity. If consumers value product diversity, we show that output growth, the natural interest rate, and welfare decrease with competition.
    Keywords: Competition, growth, labor share, markup.
    JEL: E10 E22 E25
    Date: 2020
  3. By: Shekhar, Shiva; Thomes, Tim Paul
    Abstract: We investigate the effects of passive backward acquisitions in their efficient upstream supplier on downstream firms' ability to collude in a dynamic game of price competition with homogeneous goods. We find that passive backward acquisitions impede downstream collusion. The main driver of our finding is that a passive backward acquisition secures an acquirer from zero continuation profits after a breakdown of collusion. This anti-collusive effect cannot be outweighed by a lower collusive price that is set by the cartel to increase the acquirer's profit from its claim on the upstream margin.
    Keywords: Tacit collusion,passive backward acquisitions,Bertrand competition
    JEL: D43 L13 L40 L81
    Date: 2020
  4. By: Clark, Robert; Coviello, Decio; de Leverano, Adriano
    Abstract: A number of recent papers have proposed that a pattern of isolated winning bids may be associated with collusion. In contrast, others have suggested that bid clustering, especially of the two lowest bids, is indicative of collusion. In this paper, we present evidence from an actual procurement cartel uncovered during an anticollusion investigation that reconciles these two points of view and shows that both patterns arise naturally together as part of a cartel arrangement featuring complementary bidding. Using a difference-in-difference approach, we compare the extent of winning-bid isolation and clustering of bids in Montreal's asphalt industry before and after the investigation to patterns over the same time span in Quebec City, whose asphalt industry has not been the subject of collusion allegations. Our findings provide causal evidence that the collusive arrangement featured both clustering and isolation. We use information from testimony of alleged participants in the cartels to explain how these two seemingly contradictory patterns can be harmonized.
    Keywords: Auction,Bidding ring,Collusion,Complementary bidding,Clustered bids,Missing bids,Public procurement
    JEL: L22 L74 D44 H57
    Date: 2020
  5. By: R. MONIN (Insee); M. SUAREZ CASTILLO (Insee - Crest)
    Abstract: Within-firm product switching is recognised as an important source of growth. We examine how portfolio dynamics is related to product market power, product efficiency and within-firm differentiation. We derive perproduct markup and marginal cost following De Loecker et al. (2016) on a large panel of French manufacturers over 2009-2017 and build three novel measures of product similarity. We find that selection based on performance is a leading driver of the performance gap between entrant and incumbent products. Markups are as important as marginal costs in explaining selection patterns. Our results suggest that firms renew their portfolio using trial and error and select the best performing products, closer to their core competency. However at the firm level, most of markup growth is accounted for by a reallocation toward best performing products, with a minor role for product entry and exit in the short run.
    Keywords: Multiproduct firms; Product dynamics; Product portfolio; Markups
    JEL: D2 D4 L1
    Date: 2020
  6. By: Zhou, Haiwen
    Abstract: How market size and the level of coordination costs determine the degree of specialization is studied in an infinite horizon model with the amount of capital determined endogenously. Firms producing the same intermediate good engage in oligopolistic competition and choose the degree of specialization of their technologies to maximize profits. A more specialized technology is a technology with a lower marginal cost, but a higher fixed cost. Interestingly, the relationship between the level of coordination costs and a firm’s degree of specialization is ambiguous. A firm in a country with a larger market size, more patient citizens, or a higher amount of knowledge will choose more specialized technologies and this country will have a higher wage rate and a higher capital stock. If fixed costs decrease, firms will choose more flexible manufacturing.
    Keywords: The division of labor, market size, fixed costs, flexible manufacturing, coordination costs
    JEL: D43 L13 O14
    Date: 2020–10–19
  7. By: Jan Knoepfle
    Abstract: This paper studies information transmission in situations in which multiple senders compete for the attention of a decision maker. Senders are partially informed about a state and choose how to reveal information over time to attract maximal attention. A decision maker wants to learn about the state but faces attention costs. I characterise an equilibrium with simple strategies that lead to full information transmission in minimal time. The attention each sender receives is proportional to the residual value of her information. With endogenous information acquisition, increasing initial public information may decrease the aggregate information in society.
    Keywords: Attention, Dynamic Information Provision, Media Competition
    JEL: D43 D83 L86
    Date: 2020–10
  8. By: Krotova, Alevtina; Mertens, Armin; Scheufen, Marc
    Abstract: Data is an important business resource. It forms the basis for various digital technologies such as artificial intelligence or smart services. However, access to data is unequally distributed in the market. Hence, some business ideas fail due to a lack of data sources. Although many governments have recognised the importance of open data and already make administrative data available to the public on a large scale, many companies are still reluctant to share their data among other firms and competitors. As a result, the economic potential of data is far from being fully exploited. Against this background, we analyse current developments in the area of open data. We compare the characteristics of open governmental and open company data in order to define the necessary framework conditions for data sharing. Subsequently, we examine the status quo of data sharing among firms. We use a qualitative analysis of survey data of European companies to derive the sufficient conditions to strengthen data sharing. Our analysis shows that government data is a public good, while company data can be seen as a club or private good. Latter frequently build the core for companies' business models and hence are less suitable for data sharing. Finally, we find that promoting legal certainty and the economic impact present important policy steps for fostering data sharing.
    JEL: L21 L86 M21 O32
    Date: 2020
  9. By: Quint, Ansgar F.; Rudsinske, Jonas F.
    Abstract: We study the welfare and distribution effects of corporate taxation and transfer pricing in an asymmetric general oligopolistic equilibrium trade model. Without profit shifting, an increasing profit tax rate shifts welfare towards the taxing country, where it also decreases real wages, whereas real wages rise in the other country. Labor income increases relative to profit income in both countries. Transfer pricing generates an additional benefit from exporting, such that companies want to expand production. Caused by this supply channel, real wages will rise in both countries. Due to shifting tax incomes, a cross-country demand channel relocates consumption from the high- to the low-tax country. In the low-tax country, real profits decrease such that the labor share of income rises.
    Keywords: general oligopolistic equilibrium,international trade,labor share,profit shifting,tax evasion,transfer pricing
    JEL: E25 F10 H25 H26 L13
    Date: 2020
  10. By: Yihan Yan
    Abstract: In June 2014, Tesla, a leading manufacturer of electric vehicles, announced it would make its software and hardware available for free to other automakers. This paper analyzes the effect of Tesla's open source initiative on the plug-in hybrid and electric vehicle (PHEV) industry in the US. On the one hand, open source allows PHEV manufacturers to use the advanced technology of Tesla, which could lead to lower investment costs and a higher incentive to invest. Open source also partially removes the entry barriers and could attract more entrants and induce economies of scale, leading to decreased manufacturing costs. On the other hand, underinvestment of Tesla's rivals may occur as a result of free riding, which could result in slower quality improvements in the industry. I quantify these impacts by estimating a dynamic structural model, where players make investment and entry decisions to maximize discounted future returns. My results show that Tesla's initiative was beneficial for the industry and Tesla. I find a 60% drop in investment cost, and a decrease of 100 million in entry cost into the PHEV industry. Counterfactual analysis shows that, had Tesla not provided open source, the industry would have had 33% fewer PHEVs and Tesla would have had one billion less in profit.
    Keywords: Open Source, Dynamics, Quality, Differentiated Products, Discrete Choice, Automobile Industry
    JEL: L11 L15 L62
    Date: 2020–10
  11. By: David Bardey; Danilo Aristizábal; Bibiana Sáenz; Santiago Gómez
    Abstract: Developing a database that includes 59 countries, our study sheds light on the role of mobile telecommunications markets' concentration on countries' competitiveness. Performing several estimations and using an instrumental variable that aims to explain the degree of concentration in mobile phone markets, we find that the higher is the concentration in this industry, the lower is the use of the information technology and communication (ICT). On the other hand, we also find that the use of ITC is positively correlated to countries' competitiveness. Thus, our results reveal positive spillover effects of the mobile phone industry on countries' competitiveness and suggest that all policies that aim to reduce concentration and market power in the mobile phone industry is welcomed.
    Keywords: Market structure, Concentration, Competitiveness, Telecommunications industry.
    JEL: L11 O33
    Date: 2020–10–16

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