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on Industrial Organization |
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Issue of 2021‒05‒10
nine papers chosen by |
| By: | C. Lanier Benkard; Ali Yurukoglu; Anthony Lee Zhang |
| Abstract: | This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper's main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others' home product markets. |
| JEL: | L1 L4 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28745&r= |
| By: | Bighelli, Tommaso; Di Mauro, Filippo; Melitz, Marc J.; Mertens, Matthias |
| Abstract: | This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. |
| Keywords: | allocative efficiency,European market structure,firm concentration,market power,productivity |
| JEL: | D24 E25 F15 L11 L25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhcom:32021&r= |
| By: | Johnson, Justin; Rhodes, Andrew |
| Abstract: | We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. Such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satisfies certain observable features. Post-merger synergies may lower consumer surplus. The level of, and changes in, the Herfindahl-Hirschman Index may give a misleading assessment of how a merger affects consumers. A merger may benefit some outsiders but harm others. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15830&r= |
| By: | Choné, Philippe; Linnemer, Laurent; Vergé, Thibaud |
| Abstract: | Asymmetric information in procurement entails double marginalization. The phenomenon is most severe when the buyer has all the bargaining power at the production stage, while it vanishes when the buyer and suppliers' weights are balanced. Vertical integration eliminates double marginalization and reduces the likelihood that the buyer purchases from independent suppliers. Conditional on market foreclosure, the probability that final consumers are harmed is positive only if the buyer has more bargaining power when selecting suppliers than when negotiating over prices and quantities. Otherwise, the buyer's and consumers' interests are aligned. |
| Keywords: | Asymmetric information; Bargaining; Double marginalization; Optimal procurement mechanism; Vertical merger |
| JEL: | D4 D8 L1 L4 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15849&r= |
| By: | Rostam-Afschar, Davud; Unsorg, Maximiliane |
| Abstract: | We examine a deregulation of German pharmacists to assess its effects on retail and labor markets. From 2004 onward, the reform allowed pharmacists to expand their single-store firms and to open or acquire up to three affiliated stores. This partial deregulation of multi-store prohibition reduced the cost of firm expansion substantially and provides the basis for our analysis. We develop a theoretical model that suggests that the general limitation of the total store number per firm to four is excessively restrictive. Firms with high managerial efficiency will open more stores per firm and have higher labor demand. Our empirical analysis uses very rich information from the administrative panel data on the universe of pharmacies from 2002 to 2009 and their affiliated stores matched with survey data, which provide additional information on the characteristics of expanding firms before and after the reform. We find a sharp immediate increase in entry rates, which continues to be more than five-fold of its pre-reform level after five years for expanding firms. Expanding firms can double revenues but not profits after three years. We show that the increase of the number of employees by 50% after five years and the higher overall employment in the local markets, which increased by 40%, can be attributed to the deregulation. |
| Keywords: | egulation,acquisitions,entry,market concentration,wages,employment,pharmacists |
| JEL: | L4 L5 L2 J44 J23 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:836&r= |
| By: | Garcia, Daniel; Janssen, Maarten; Shopova, Radostina |
| Abstract: | In markets, such as those for airline tickets and hotel accommodations, firms sell time-dated products and have private information about unsold capacities. We show that competition under private information explains observed phenomena, such as increased price dispersion and higher expected prices towards the deadline, without making specific assumptions about demand. We also show that private information severely limits the market power of firms and that information exchange about capacity negatively affects consumers. Finally, we inquire into the incentives to unilaterally disclose information or to engage in espionage about rival's capacity and show that these activities are particularly harmful for consumers. |
| Keywords: | asymmetric information; capacity constraints; Disclosure; Dynamic pricing; industrial espionage |
| JEL: | D40 D83 L13 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15767&r= |
| By: | Doval, Laura; Skreta, Vasiliki |
| Abstract: | Product personalization opens the door to price discrimination. A rich product line allows for higher consumer satisfaction, but the mere choice of a product carries valuable information about the consumer that the firm can leverage for price discrimination. Controlling the degree of product personalization provides the firm with an additional tool to curb ratcheting forces arising from consumers' awareness of being price discriminated. Indeed, a firm's inability to not engage in price discrimination introduces a novel distortion: The firm offers a subset of the products that it would offer if, instead, the firm could commit to not price discriminate. Doing so gives commitment power to the firm: By 'pooling' consumers with different tastes to the same variety the firm commits not to learn their tastes. |
| Keywords: | Dynamic Mechanism Design; information design; Limited Commitment; price discrimination; product-line design |
| JEL: | D84 D86 L12 L13 L15 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15969&r= |
| By: | Paolo Bertoletti |
| Abstract: | We propose a novel approach to study competition among platforms. In particular, we consider representative consumer’s preferences over the services platforms provide and the commodities they intermediate. Platforms are assumed to be large, intermediating a variety of commodities offered by sellers under monopolistic competition and free entry, and competing à la Cournot. We use a duopoly setting to discuss the welfare implications of platform exchange commissions, which are typically significant in real-world cases. Our preliminary finding is that positive commission actually worsens consumer welfare by reducing the platform price-adjusted quality indexes. |
| Keywords: | platform competition, two-sided markets, market intermediation |
| JEL: | D11 L13 L41 L51 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:468&r= |
| By: | Hyejin Lee; Johan Swinnen; Patrick Van Cayseele |
| Abstract: | Agricultural cooperatives have often been promoted as a way to increase their market power and to obtain stability of profit against uncertainty. This paper estimates the firm-level markups and markup volatility to identify the countervailing market power of cooperatives in the Italian fruits and vegetable sector and the dairy sector. We use the firm-level data of Italian firms for the period 2007-2014. We find that, overall, there is a tradeoff in cooperatives’ role between obtaining market power and stability. Farmer cooperatives in both sectors gain stability in their markups but their markups are lower, on average, than those for non-cooperatives. For processor cooperatives, the fruits and vegetable sector obtains more market power. This appears to arise from the product differentiation strategy of the processors cooperative. |
| Date: | 2021–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:ete:licosp:674093&r= |