nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒04‒26
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competition and Regulatory Challenges in Digital Markets: How to Tackle the Issue of Self-Preferencing? By Frédéric Marty
  2. Collusion in Supply Functions under Technology Licensing By Celen, Ihsan; Saglam, Ismail
  3. Market Concentration and Incentives to Collude in Cournot Oligopoly Experiments By Nobuyuki Hanaki; Aidas Masiliunas
  4. Rawlsian Antitrust By Chris Pike
  5. Licensing Cost-Reducing Innovations Under Supply Function Competition By Saglam, Ismail
  6. Pioneer, Early Follower or Late Entrant: Entry Dynamics with Learning and Market Competition By Chia-Hui Chen; Junichiro Ishida; Arijit Mukherjee
  7. Common Ownership of Competing Firms: Evidence from Australia By Andrew Leigh; Adam Triggs

  1. By: Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: This contribution deals with the application of competition rules in the digital sector and, in particular, the distortions that can result from self-preferencing strategies. In the context of the European Commission's Digital Markets Act project and the UK's plans to regulate the major digital ecosystems, the aim is to examine the relative effectiveness of the current effects-based approach stemming from competition law enforcement, the use of per-se rules, the implementation of specific regulation or the imposition of structural remedies to address such risks. It is a question of insisting on the objectives pursued (maximisation of consumer welfare, dynamic efficiency, contestability of market positions and fairness) and on the conditions for the implementation of hybrid approaches combining the logic of sectoral regulation and procedures rooted in the enforcement of competition rules.
    Keywords: Digital ecosystems, self-preferencing, exclusionary abuses, exploitative abuses, remedies
    JEL: L12 L41 L42 L86
    Date: 2021–04
  2. By: Celen, Ihsan; Saglam, Ismail
    Abstract: We consider an infinitely-lived duopoly with asymmetric costs and study the incentives of the firms to collude or compete in supply functions under the possibility of technology licensing. Simulating the subgame-perfect Nash equilibria of alternative industry organizations, we show that licensing makes collusion harder; but it always has a positive effect on the welfares of consumers and the less efficient firm in the duopoly.
    Keywords: Duopoly; collusion; supply function equilibrium; licensing.
    JEL: D43 L13 O30
    Date: 2021–04–19
  3. By: Nobuyuki Hanaki; Aidas Masiliunas
    Abstract: Multiple Cournot oligopoly experiments found more collusive behavior in markets with fewer firms (Huck et al., 2004; Hostmann et al., 2018). This result could be explained by a higher difficulty to coordinate or by lower incentives to collude in markets with more firms. We show that the Quantal Response Equilibrium can explain how the change in incentives alone could result in more collusive output in smaller markets. We propose a new method to manipulate the group size while keeping constant the locations of key outcomes, payoffs at these outcomes and the incentives to collude. Experiments using this normalized payoff function find that the number of firms has no direct effect on the average output or profit. We conclude that higher rates of aggregate collusion in markets with fewer firms are driven by the changes in incentives or focality rather than purely the number of firms. These findings imply that antitrust policies aimed at preventing collusion should focus on incentives rather than on the market concentration.
    Date: 2021–04
  4. By: Chris Pike (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper attempts to reconcile the goals of competition and equality within antitrust, and in doing so, suggests that this task can be seen to correspond to the efforts that John Rawls made to reconcile liberalism and equality within his principles of justice. Applying a Rawlsian analysis to this problem, I propose the adoption of inclusivity as a secondary objective within competition law (not as an additional primary objective, as for example under a public interest test), and suggest that this approach might therefore be labelled Rawlsian Antitrust. In locating this approach amongst the existing established schools of thought, I emphasise both its economic basis, and the clarity of its values, and how the reconciliation between those might be operationalised. I identify the existence of both pro-enforcement and more cautious factions within this approach. However, I suggest that identifying the common ground between them might form the basis for enabling competition policy to contribute to the fight for greater inclusivity, arguably the great challenge of our time, which was first stirred, and then made urgent by successive crisis that have shaken our world, and which now threaten to burn down the technocratic antitrust chateau.
    Date: 2021–04–15
  5. By: Saglam, Ismail
    Abstract: In this paper, we study the problem of licensing cost-reducing innovations in a duopoly under supply function competition. We show that the innovator prefers fixed-fee licensing to no licensing if its cost advantage is not extremely large. Moreover, if its cost advantage is not extremely small, the innovator prefers fixed-fee licensing to royalty licensing, as well.
    Keywords: Duopoly; licensing; supply function competition.
    JEL: D43 L13 O30
    Date: 2021–04–20
  6. By: Chia-Hui Chen; Junichiro Ishida; Arijit Mukherjee
    Abstract: Timing of market entry is one of the most important strategic decisions a firm must make, but its decision process becomes convoluted with information and payoff spillovers. The threat of competition pushes firms to enter earlier to preempt their rivals while the possibility of learning make them cautiously wait for others to take action. This combination amounts to a new class of timing games where first-mover advantage first emerges as in preemption games but second-mover advantage later prevails as in wars of attrition. Our model identifies under what conditions a firm becomes a pioneer, early follower or late entrant and shows that the timing of entry is excessively early (late) when there emerges a late entrant (early follower). We also argue that consumer inertia is often efficiency-enhancing in this environment, highlighting an elusive link between static market competition and dynamic entry competition.
    Date: 2021–04
  7. By: Andrew Leigh; Adam Triggs
    Abstract: We provide the first estimates of the extent of common ownership of competing firms in Australia. Combining data on market shares and substantial shareholdings, we calculate the impact of common ownership on effective market concentration. Among firms where we can identify at least one owner, 31 percent share a substantial owner with a rival company. Analysing 443 industries, we identify 49 that exhibit common ownership, including commercial banking, explosives manufacturing, fuel retailing, insurance and iron ore mining. Across the Australian economy, common ownership increases effective market concentration by 21 percent. Our estimates imply that if listed firms seek to maximise the value of their investors’ portfolios, then they place the same value on $3.70 of their competitors’ profits as on $1 of their own profits. We discuss the limitations of the available data, and the potential implications of common ownership for competition in Australia.
    Keywords: horizontal shareholding, market concentration, Herfindahl-Hirschman Index, Modified Herfindahl-Hirschman Index, antitrust, competition
    JEL: L11 L12 D42 D43
    Date: 2021

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