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on Industrial Organization |
| By: | Paul S. Koh |
| Abstract: | Antitrust authorities routinely rely on concentration measures to evaluate the potential negative impacts of mergers. Using a first-order approximation argument with logit and CES demand, I show that the welfare effect of a merger on consumer surplus is proportional to the change in the Herfindahl-Hirschman index, where the proportionality coefficient depends on price responsiveness parameter, market size, and the distribution of merging firms' shares. This paper elucidates how HHI measures inform the market power effects of mergers. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.12924 |
| By: | Navarra, Federico; Pino, Flavio; Sandrini, Luca |
| Abstract: | We study a hybrid marketplace where a vertically integrated platform competes with a seller in a horizontally differentiated downstream market. The platform has a data advantage and can price discriminate consumers, whereas the seller cannot. Our analysis shows that, by properly setting the per-unit transaction fee, the platform can always avoid head-to-head competition with the seller, regardless of the level of horizontal differentiation. Mandating data-sharing, which allows the seller to also price discriminate, does not seem to solve this problem and, in fact, aggravates it further, generally benefiting the platform. The seller is better off only if it is less efficient than the platform, whereas consumers are worse off. We propose that preventing the platform from adjusting the fee after the data-sharing mandate is not enough to reinstate competition in the downstream market. We then show that banning the hybrid business model and forbidding the use of data for price discrimination increase consumer surplus, even if the seller becomes a monopolist. In other words, we propose that the harm to competition comes from the platform's business model rather than from its information advantage. |
| Keywords: | hybrid platforms, data-sharing, vertical integration, price discrimination |
| JEL: | D42 L12 L41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300680 |
| By: | Paul S. Koh |
| Abstract: | Market definition holds significant importance in antitrust cases, yet achieving consensus on the correct approach remains elusive. As a result, analysts routinely entertain multiple market definitions to ensure the resilience of their conclusions. I propose a simple framework for conducting organized sensitivity analysis with respect to market definition. I model candidate market definitions as partially ordered and use a Hasse diagram, a directed acyclic graph representing a finite partial order, to summarize the sensitivity analysis. I use the Shapley value and the Shapley-Shubik power index to quantify the average marginal contribution of each firm in driving the conclusion. I illustrate the method's usefulness with an application to the Albertsons/Safeway (2015) merger. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.12774 |
| By: | Hahn, Nadine |
| Abstract: | I develop a general framework for markup and markdown estimation that allows for profit sharing along value chains without making assumptions on conduct between vertically related firms. I derive the conditions under which the markup and markdown estimates relate to the firms' equilibrium bargaining weights. To account for vertical and horizontal product differentiation in the production function estimation, I include plant-level prices and employ car characteristics as demand-based quality controls. Between 2002 and 2018, the European car manufacturers' margins on their input and product markets combined were stable around 10% to 15% on average. The manufacturers' share of the margin on the input market, however, depends on the car segments in which they produce. The suppliers' share depends negatively on the variety of their product portfolio and depends positively on their relationship intensity to car manufacturers. The analysis shows that the manufacturers' bargaining weights decreased during crisis years, such as the financial crisis in 2007 or the dieselgate scandal in 2015. |
| Keywords: | Market Power, Markups, Markdowns, Production Approach, Car Industry, Vertical Chains |
| JEL: | D22 L13 L14 L62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300675 |
| By: | Ben Knox; Yannick Timmer |
| Abstract: | We study investors’ perceptions of inflation through the lens of a high-frequency event study and document that they have a stagflationary view of the world. In response to higher-than-expected inflation, investors expect firms’ nominal cash flows to remain stagnant while discount rates increase, resulting in lower stock prices. Both the equity risk premium and nominal risk-free yields rise. However, longer-term real yields remain unchanged, and policy-sensitive real yields even decline, with increases in nominal yields offset by larger increases in inflation expectations. Consistent with a stagflationary view in which investors interpret inflation as a marginal cost shock, investors expect firms with low market power to suffer larger declines in cash flows. Cash flow expectations of equity investors are aligned with those of professional earnings analysts, both in the time series and across the market power distribution. |
| Keywords: | inflation, stock returns, stagnant cash flows, market power |
| JEL: | G12 E31 E44 L11 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11236 |
| By: | Hannes Ullrich; Jonas Hannane; Christian Peukert; Luis Aguiar; Tomaso Duso |
| Abstract: | Tracking online user behavior is essential for targeted advertising and is at the heart of the business model of major online platforms. We analyze tracker-specific web browsing data to show how the prediction quality of consumer profiles varies with data size and scope. We find decreasing returns to the number of observed users and tracked websites. However, prediction quality increases considerably when web browsing data can be combined with demographic data. We show that Google, Facebook, and Amazon, which can combine such data at scale via their digital ecosystems, may thus attenuate the impact of regulatory interventions such as the GDPR. In this light, even with decreasing returns to data small firms can be prevented from catching up with these large incumbents. We document that proposed data-sharing provisions may level the playing field concerning the prediction quality of consumer profiles. |
| Keywords: | prediction quality, web tracking, cookies, data protection, competition policy, internet regulation, GDPR |
| JEL: | C53 D22 D43 K21 L13 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11240 |
| By: | KAWAKUBO Takafumi; SUZUKI Takafumi |
| Abstract: | The rising trend in markups documented in the United States and many other countries posed concerns in recent decades. This paper estimates firm-level markups using Japanese data during 2000--2021. First, we find that the markups overall have barely changed in the past 20 years. However, when we restrict the sample to the manufacturing sector, the markups decreased between 2000 and 2009 and increased between 2010 and 2021. There appears to be little change over the period of COVID-19. Second, we additionally exploit firm-level buyer-supplier linkage information to study the relationship between buyer and supplier markups. Our findings show that there is positive and significant correlation between markups of firms on both sides of the transactions. This result suggests the potential pass-through of prices along the supply chains. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:24068 |
| By: | Hahn, Nadine |
| Abstract: | Production functions provide a mapping from the firms' input quantity and productivity to output quantity. This mapping only generates unbiased estimates if input and output quality variation within and between observation units is accounted for. I review and classify state-of-the-art methods to address quality and price variation in production function estimation. Even if inputs and outputs are observed in quantities, unobserved quality variation might bias production function estimates for industries with differentiated products. To account for quality variation, I introduce product characteristics to the estimation procedure and provide an application to the European car industry. |
| Keywords: | Production Functions, Product Differentiation, Quality Control Functions |
| JEL: | D22 D24 C38 B41 L62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300673 |
| By: | Davi-Arderius, Daniel (University of Barcelona); Jamasb, Tooraj (Department of Economics, Copenhagen Business School) |
| Abstract: | With the increasing participation of renewable sources, prices of energy commodity in the day-ahead markets have been decreasing and in increasing number of hours to zero or even negative prices. However, in hours with prices and charges equal or below zero, end-users may still pay significant prices for the ‘free’ electricity, which presents a paradox. This paper analyses the zero-negative price paradox in a highly decarbonized electricity market. We use Seasonal ARIMA methods with hourly data from the Spanish power system (2021-2024). We find that non-energy system costs increase when day-ahead prices decrease. Thus, customers do not receive efficient price signals to adjust their consumption when more renewables are available. In other words, some benefits of lower prices seem to be traded-off with this “price paradox”. Similar results can be anticipated in other countries with increasing share of renewables. Future studies of welfare impact of electricity prices should consider how to minimize these increasing non-energy costs. |
| Keywords: | Energy-only market; Day-ahead electricity markets; Negative prices; Renewables; Decarbonization; Ancillary services |
| JEL: | L10 L50 L94 Q41 |
| Date: | 2024–08–17 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:cbsnow:2024_013 |
| By: | Schwierzy, Julian; Wenzel, Tobias |
| Abstract: | Additive Manufacturing (AM) enables mass customization and has thereby the potential to revolutionize traditional manufacturing. In this paper, we examine how the adoption of AM affects competition and welfare in traditionally standardized product markets. Analyzing a game-theoretical model of spatial product differentiation, we find a decline in standardized product prices. In contrast, the price of customized products will exceed the price level of the initial market. These price changes are accompanied with a reduction in the number of traditional manufacturers. In terms of welfare, AM adoption increases total surplus. However, it can be detrimental for consumer surplus if the competitive advantage of AM technology is excessively large. Based on these findings, we discuss policy implications for the manufacturing industry. We recommend complementary measures of ensuring the competitive environment for firms with AM technology and subsidizing their fixed cost in order to realize benefits for both consumers and producers. |
| Keywords: | Technology adoption, Market structure, Welfare, Product differentiation, Industrial Additive Manufacturing |
| JEL: | L11 L22 L23 O33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300674 |
| By: | Pollitt, M. G.; Duma, D.; Covatariu, A. |
| Abstract: | In this paper we focus on suggestions on how energy regulation needs to change in the light of the likely ongoing and possibly increasing uncertainty which the path to net zero involves. We argue that there are things that regulators can do in the circumstances (and that their governments could encourage them to do). We begin with a discussion of the uncertainty problem of regulation on the path to net zero. Next, we consider what regulation for net zero should focus on. We then move on to the role of regulation within the national governance system for the energy sector. After this we outline how best practice regulation should evolve in the light of both theory and experience. Theories of regulation suggest key roles for both learning and for trade-offs in regulation. We advocate for the development of a ‘learning regulator’ which simultaneously learns from the past (dynamic regulation), in the present (responsive regulation) and anticipates future learning points (adaptive regulation). While current best practice regulation involves the first two types of learning, the third remains a work in progress. Finally, we introduce some possible regulatory lessons from other sectors, namely water, autonomous vehicles and airports. |
| Keywords: | Uncertainty, energy regulation, net zero |
| JEL: | L51 L94 |
| Date: | 2024–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2444 |
| By: | Carl Hase; Johannes Kasinger |
| Abstract: | This paper shows that retailers increase prices in response to organized retail crime, revealing a substantial aspect of retail crime's social costs. We match detailed information on store-level crimes to administrative scanner data from the universe of transactions for cannabis retailers in Washington state. Exploiting quasi-experimental variation from the timing of store-level robberies and burglaries, we find that crimes cause a 1.8% increase in retail prices at victimized stores. Nearby rivals of victimized stores increase prices by a similar amount with a two-month lag. Retailers' price responses are not driven by demand effects, increased wholesale costs, or strategic price responses. Instead, they are consistent with precautionary security expenditures. We find the largest pass-through rates for independent stores and in less concentrated markets. We estimate that crime imposes a 1% "hidden" unit tax on affected stores, implying an annual negative welfare effect of approximately $30.6 million, with consumers bearing two-thirds of this burden. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.07201 |
| By: | Suguru Otani |
| Abstract: | I investigate how explicit cartels, known as ``shipping conferences", in a global container shipping market facilitated the formation of one of the largest globally integrated markets through entry, exit, and shipbuilding investment of shipping firms. Using a novel data, I develop and construct a structural model and find that the cartels shifted shipping prices by 20-50\% and encouraged firms' entry and investment. In the counterfactual, I find that cartels would increase producer surplus while slightly decreasing consumer surplus, then may increase social welfare by encouraging firms' entry and shipbuilding investment. This would validate industry policies controlling prices and quantities in the early stage of the new industry, which may not be always harmful. Investigating hypothetical allocation rules supporting large or small firms, I find that the actual rule based on tonnage shares is the best to maximize social welfare. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.15147 |
| By: | Bolotova, Yuliya V. |
| Abstract: | The motivations for this case study are recent developments in the U.S. broiler chicken industry involving allegations of an illegal exercise of buyer market power by the five largest broiler chicken processors in the country in the market for broiler grow-out services. This case study introduces economic, business, and legal issues related to the alleged input price-fixing cartel of the five largest broiler processors. The case study describes the broiler processors’ conduct and presents a theoretical framework that may explain market and price effects of the alleged input price-fixing cartel. In addition, the case study introduces a comprehensive analysis of a sample broiler production agreement between a broiler grower and a broiler processor with a particular attention paid to design of the payment (compensation) system included in this agreement. The teaching note provides suggested answers to discussion and analytical questions, and it also includes multiple-choice questions that can be used as in-class assignments, quizzes, and exam questions.1 This case study is suitable for a variety of undergraduate and graduate courses taught in agricultural economics and agribusiness programs and for extension and outreach audiences. |
| Keywords: | Agribusiness, Production Economics |
| Date: | 2924–07 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:344127 |