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on Industrial Organization |
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Issue of 2024‒05‒13
thirteen papers chosen by |
| By: | Stöhr, Annika |
| Abstract: | This comprehensive review of ex-post merger studies assesses the price effects of horizontal transactions to determine whether there are common post-merger price effects, both overall and in specific markets. The aim is to derive implications for policy makers and competition authorities in terms of effective merger enforcement and competition policy. By combining and further analysing the results of 52 retrospective studies on 82 mergers or horizontal transactions, it can be shown that the sector in which the respective transaction takes place alone is not a strong indicator of the direction of price-related merger effects. In contrast, the "size" or "importance" of a transaction, as well as market concentration seem to be correlated with post-transaction price increases, especially in already highly concentrated markets. Overall, this meta-study shows the importance of ex-post case studies for improving ex-ante merger control: although generalisations can only be made with caution, the subsequent analysis of a case and its ex-post observable outcome can provide useful information for future merger enforcement in general, either in the same industry and/or with similar case characteristics, as well as for competition policy regulators. |
| JEL: | D49 K21 L13 L40 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:289615&r=ind |
| By: | Tan Gan; Hongcheng Li |
| Abstract: | We consider the robust pricing problem of an advertising platform that charges a producer for disclosing hard evidence of product quality to a consumer before trading. Multiple equilibria arise since consumer beliefs and producer's contingent advertisement purchases are interdependent. To tackle strategic uncertainty, the platform offers each producer's quality type a menu of disclosure-probability-and-price plans to maximize its revenue guaranteed across all equilibria. The optimal menus offer a continuum of plans with strictly increasing marginal prices for higher disclosure probabilities. Full disclosure is implemented in the unique equilibrium. All partial-disclosure plans, though off-path, preclude bad equilibrium play. This solution admits a tractable price function that suggests volume-based pricing can outperform click-based pricing when strategic uncertainty is accounted for. Moreover, the platform prioritizes attracting higher types into service and offers them higher rents despite symmetric information between the platform and the producer. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.06019&r=ind |
| By: | Sara Fish; Yannai A. Gonczarowski; Ran I. Shorrer |
| Abstract: | The rise of algorithmic pricing raises concerns of algorithmic collusion. We conduct experiments with algorithmic pricing agents based on Large Language Models (LLMs), and specifically GPT-4. We find that (1) LLM-based agents are adept at pricing tasks, (2) LLM-based pricing agents autonomously collude in oligopoly settings to the detriment of consumers, and (3) variation in seemingly innocuous phrases in LLM instructions ("prompts") may increase collusion. These results extend to auction settings. Our findings underscore the need for antitrust regulation regarding algorithmic pricing, and uncover regulatory challenges unique to LLM-based pricing agents. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.00806&r=ind |
| By: | Borraz, Fernando; Zipitría, Leandro |
| Abstract: | We assess price dispersion in retail markets and its sources over time. Using a product-detailed price database, we document a consistent divergence of prices over time in retail markets in Uruguay: price dispersion increased by 3.1% in fifteen years. Next, we analyze microeconomic and macroeconomic factors that correlate with price dispersion. We differentiate the effect in the short-run-i.e., static differences between markets-and long-run effects-if these effects increase or decrease over time. Macroeconomic factors fluctuate over time in their impact on price dispersion. Microeconomic factors, mainly competition between stores and differences in category assortments between stores, have a substantial shortrun correlation and an increased effect over time. When we add interactions to the trend, our measure of price dispersion, we found that price dispersion is twice higher: 6.3%. |
| Keywords: | Price Dispersion, Market Segmentation, Retail Industry |
| JEL: | D4 F40 L1 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1424&r=ind |
| By: | Alexander Erlei; Mattheus Brenig; Nils Engelbrecht |
| Abstract: | Extensive research shows that consumers are generally averse to price discrimination. However, instruments of differential pricing can benefit consumer surplus and alleviate inequity through targeted price discounts. This paper examines how these outcome considerations influence consumer reactions to price discrimination. Six studies with 3951 participants show that a large share of consumers is willing to costly switch away from a store that introduces a discount for low-income consumers. This happens irrespective of whether income differences are due to luck or merit. While the price-discriminating store does attract some new high-income consumers, it cannot compensate the loss of existing consumers. Allowing for altruistic preferences by simulating a market mechanism increases costly support for price discounts, but does not alleviate consumer aversions. Finally, we provide evidence that warm glow drives costly support for price discounts. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.03581&r=ind |
| By: | Giambattista Albora; Matteo Straccamore; Andrea Zaccaria |
| Abstract: | Defining and finalizing Mergers and Acquisitions (M&A) requires complex human skills, which makes it very hard to automatically find the best partner or predict which firms will make a deal. In this work, we propose the MASS algorithm, a specifically designed measure of similarity between companies and we apply it to patenting activity data to forecast M&A deals. MASS is based on an extreme simplification of tree-based machine learning algorithms and naturally incorporates intuitive criteria for deals; as such, it is fully interpretable and explainable. By applying MASS to the Zephyr and Crunchbase datasets, we show that it outperforms LightGCN, a "black box" graph convolutional network algorithm. When similar companies have disjoint patenting activities, on the contrary, LightGCN turns out to be the most effective algorithm. This study provides a simple and powerful tool to model and predict M&A deals, offering valuable insights to managers and practitioners for informed decision-making. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.07179&r=ind |
| By: | d'Artis Kancs |
| Abstract: | Motivated by the recently experienced systemic shocks (the COVID-19 pandemic and the full-fledged Russia’s war of aggression against Ukraine) – that have created new forms of uncertainties to our supplies – this paper explores the supply chain robustness under risk aversion and ambiguity aversion. We aim to understand the potential consequences of deeply uncertain systemic events on the supply chain resilience and how does the information precision affect individual agents’ choices and the chain-level preparedness to aggregate shocks. Augmenting a parsimonious supply chain model with uncertainty, we analyse the relationship between the upstream sourcing decisions and the supply chain survival probability. Both risk-averse and ambiguity-averse individually-optimising agents’ upstream sourcing paths are efficient but can become vulnerable to aggregate shocks. In contrast, a chain-level coordination of downstream firm sourcing decisions can qualitatively improve the robustness of the entire supply chain compared to the individual decision-making baseline. Such a robust decision making ensures that in the presence of an aggregate shock – independently of its realisation – part of upstream suppliers will survive and the final goods’ supply will be ensured even under the most demanding circumstances. Our results also indicate that an input source diversification extracts a cost in foregone efficiency. |
| Keywords: | Resilience, Robustness, Global Supply Chain, uncertainty, risk, ambiguity. |
| JEL: | E7 F02 F12 F13 L15 |
| Date: | 2024–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2024_03&r=ind |
| By: | Budzinski, Oliver |
| Abstract: | Financial regulation in sports is usually discussed in the context of representing an instrument against 'financial doping'. Notwithstanding the merits of this discussion, this paper takes the opposite perspective and analyses how market-internal financial regulation itself may anticompetitively influence sporting results. Virtually every regulative financial intervention distorts sporting competition to some extent and creates beneficiaries and losers. Sometimes, the actual winners and losers of financial regulation stand in line with the (legitimate) goals of the regulation like limiting financial imbalances or preventing distortive midseason insolvencies of teams. However, financial regulation may also display unintended side-effects like protecting hitherto successful teams from new challengers, cementing the competitive order, creating foreclosure and entry barriers, or serving vested interests of powerful parties. All of these effects may also be hidden agendas by those who are implementing and enforcing market-internal financial regulation or influencing it. This paper analyses various types of budget caps (including salary caps) with respect to potentially anticompetitive effects. UEFA's so-called Financial Fair Play Regulations and Formula One's recent budget cap are highlighted as examples. Furthermore, the paper discusses allocation schemes of common revenues (like from the collective sale of broadcasting rights) as another area of financial regulation with potentially anticompetitive effects. Eventually, the effects of standards for accounting, financial management, and auditing are discussed. |
| Keywords: | sports economics, financial regulation, budget caps, salary caps, financial fair play, financial doping, collective sale of media rights, sports broadcasting rights, revenue sharing, formula one |
| JEL: | Z20 Z23 L40 L83 K21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:289605&r=ind |
| By: | Buccella, Domenico; Fanti, Luciano; Gori, Luca |
| Abstract: | The Corporate Social Responsibility (CSR) theory of the firm states that, in strategic markets, social actions lead to a prisoner's dilemma. This paper develops a model with pollution externalities and environmental taxation to incentivise firms' abatement activities through green R&D investments. When the firms' objective function embed environmental issues (Environmental CSR, ECSR), a large spectrum of Nash equilibria emerges, from the Pareto inefficient to the Pareto efficient (ECSR, ECSR), depending on social concern and product differentiation degree. The time (in)consistency policy affects the endogenous market structure of the ECSR decision game more than in the standard CSR without abatement and taxation. |
| Keywords: | Abatement, Corporate Social Responsibility, Duopoly, Emissions |
| JEL: | H23 L13 M14 Q58 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1421&r=ind |
| By: | Rolf Golombek; Michael Hoel; Snorre Kverndokk; Stefano Ninfole; Knut Einar Rosendahl; Michael Olaf Hoel |
| Abstract: | It is widely recognized that a cost-efficient way to achieve the climate targets of the Paris agreement requires investment in carbon capture and storage (CCS). However, to trigger sizeable investment in CCS the carbon price must exceed the historic carbon prices. This paper examines whether a higher price of carbon enhances competition of storage services and thus leads to lower costs of CCS. Using a Hotellling model with two storage sites, each being located at each end of the Hotelling line, we show that there are three alternative competition regimes. The level of the carbon tax determines which regime materializes. For “low” carbon taxes, there is no competition between the two storage firms. For “high” carbon taxes, there is standard Bertrand competition between the two storage firms. Finally, for “intermediate” carbon taxes, there is so called partial competition with multiple equilibria. Contrary to the standard conclusion on competition, we find that when each storage site is imposed to charge the same price for all its clients, the price under monopoly is lower than under partial competition. We offer several extensions of the model as well as numerical illustrations. With our reference parameter values and a carbon tax sufficiently high to reach the Paris targets, we find that we may end in a partial competition regime. |
| Keywords: | Hotelling line, kinked demand curve, duopoly, multiple equilibria, emission tax, carbon capture and storage |
| JEL: | L13 Q35 Q38 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11052&r=ind |
| By: | Budzinski, Oliver; Stöhr, Annika |
| Abstract: | In this paper, we comment on the debate about guidelines for Art. 102 TFEU in the face of the challenges brought by digital ecosystems and abuse of dominance in related markets. We take the perspective of dynamic competition economics and derive four recommendations for the future enforcement of abuse control and related merger control: (i) we advocate to abandon the as-efficient-competitor standard embraced in the late 2000s, (ii) we emphasize the relevance on focusing on exploitative abuses as well as on exclusionary ones, (iii) we suggest to implement a concept of systemic market power as a guideline to enforcement, and (iv) we argue that the same enhanced market power standard should also be applied in the corresponding merger control. While going beyond pure guideline recommendations and focusing on a dynamic-economic view, we are convinced that these steps are necessary to move towards a more effective competition policy towards abuse of digital dominance. |
| Keywords: | abuse of market power, Art. 102 TFEU, digital ecosystems, antitrust, European competition policy, as-efficient-competitor standard, exclusionary abuse, exploitative abuse, dynamic competition, merger control |
| JEL: | K21 L41 L40 L12 L14 L81 L86 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuiedp:289607&r=ind |
| By: | Graubner, Marten; Hüttel, Silke |
| Abstract: | Much of the land economics literature has largely ignored the spatial nature of competition and related differences between farmland rental and sales markets. In this note we propose a model for price formation in both markets under a spatial competition framework. We demonstrate that price formation differs, particularly under policy-induced output price shocks. We suggest that using rent-price ratio as an approximation for expectations in the net returns of farming, based on the net present value model, may produce biased results. We conclude that estimates for the capitalization of agricultural, environmental and energy policy into farmland prices can be biased. |
| Keywords: | Land Markets, Rent-price Ratio, Spatial Competition |
| JEL: | L13 Q12 Q18 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:forlwp:290396&r=ind |
| By: | Jaime Arellano-Bover; Marco De Simoni; Luigi Guiso; Rocco Macchiavello; Domenico J. Marchetti; Mounu Prem |
| Abstract: | Infiltration of the legal economy by criminal organizations (OCGs) is potentially significant, though how pervasive remains uncertain. Beyond the volume, the motives driving infiltration are of serious policy concern. We introduce a conceptual framework to differentiate between OCGs’ motives for infiltrating legal firms and validate it using new data from the Italian Financial Intelligence Unit. About 2% of Italian firms appear to have links with OCGs, with three primary motives. Firms established by OCGs are predominantly used for criminal activities (functional motive). Medium-sized firms, often infiltrated post-creation, primarily reflect a competitive motive, wherein criminal activities benefit the firm. Lastly, large, well-established firms remain separate from criminal activities and are used for pecuniary and non-pecuniary returns, such as to establish political connections (pure motive). This so far unnoticed motive accounts for a substantial share of OCGs’ infiltration. |
| Keywords: | organized crime, legal economy, firms, infiltration |
| JEL: | G30 L20 K40 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11043&r=ind |