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on Industrial Competition |
| By: | Rhodes, Andrew; Zhou, Jidong |
| Abstract: | A puzzling feature of many retail markets is the coexistence of large multiproduct firms and smaller firms with narrow product ranges. This paper provides a possible explanation for this puzzle, by studying how consumer search frictions influence the structure of retail markets. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products, and due to search frictions value the one-stop shopping convenience associated with a multiproduct firm. We find that when search frictions are relatively large all ?rms are multiproduct in equilibrium. However when search frictions are smaller the equilibrium market structure is asymmetric, with di¤erent retail formats coexisting. This allows firms to better segment the market, and as such typically leads to the weakest price competition. When search frictions are low this asymmetric market structure is also the worst for consumers. Moreover due to the endogeneity of market structure, a reduction in the search friction can increase market prices and harm consumers. |
| Keywords: | consumer search; multiproduct pricing; one-stop shopping; retail market structure; conglomerate merger |
| JEL: | D11 D43 D83 L13 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32715&r=com |
| By: | James D. Dana Jr. (Northwestern University); Kevin R. Williams (Cowles Foundation, Yale University) |
| Abstract: | Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls also facilitate intertemporal price discrimination. In our model, competing ?rms ?rst choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes more inelastic over time, as in the airline and hotel markets, a monopolist can easily price discriminate; however, we show that oligopoly ?rms generally cannot. Inventory controls let ?rms set increasing prices regardless of whether or not demand is uncertain. |
| Keywords: | Capacity-pricing games, Intertemporal price discrimination, Oligopoly models, Inventory controls |
| JEL: | D21 D43 L13 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2136&r=com |
| By: | Brito, Duarte; Osório, António (António Miguel); Ribeiro, Ricardo; Vasconcelos, Helder, |
| Abstract: | Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose a generalization of the two most traditional indicators used to screen unilateral anti-competitive effects - the Herfindahl-Hirschman Index and the Gross Upward Price Pressure Index - to partial horizontal acquisition settings. The proposed generalized indicators are endogenously derived under a probabilistic voting model in which the manager of each firm is elected in a shareholder assembly between two potential candidates who seek to obtain utility from an exogenous rent associated with corporate office. The model (i) can cope with settings involving all types of owners and rights: owners that can be internal to the industry (rival firms) and external to the industry; and rights that can capture financial and corporate control interests, can be direct and indirect, can be partial or full, (ii ) yields an endogenous measure of the owners ultimate corporate control rights, and (iii ) can also be used - in case the potential acquisition is inferred to likely enhance market power - to devise divestiture structural remedies. We also provide an empirical application of the two proposed generalized indicators to several acquisitions in the wet shaving industry, with the objective of providing practitioners with a step-by-step illustration of how to compute them in antitrust cases. JEL Classification: L13, L41, L66. Keywords: Antitrust, Partial Horizontal Acquisitions, Oligopoly, Screening Indicators, HHI, GUPPI, Corporate Control, Banzhaf Power Index |
| Keywords: | Oligopolis, Competència econòmica -- Dret i legislació, 33 - Economia, |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/321560&r=com |
| By: | Zakaria Babutsidze (Observatoire français des conjonctures économiques) |
| Abstract: | We extend the Bertrand duopolistic competition to include captives. These are consumers that have no choice between the suppliers. Usual population of shoppers are modeled performing a sequential search in order to decide where to buy a homogenous good. These two simple departures from the original setup have sharp consequences. First, we find that duopolistic price competition is not robust to inclusion of captives. The equilibrium results starkly differ and the only possible equilibrium now includes duopolists charging monopolistic prices. Second, addition of sequential search introduces multiplicity of pure strategy Nash equilibria. In this setup, we observe perverse optimal response to competitor's price changes. Notably, we find that the firm might want to reduce the price in response to the competitor's price increase, which is at odds with the usual undercutting principle. Third, we investigate the behavior of equilibrium prices depending on the heterogeneity in consumer risk attitudes. We find that the higher consumer heterogeneity with respect to acceptance of risky gambles leads to higher prices in equilibrium. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/jeo70lroq9p9bmeio80mpgg5h&r=com |
| By: | Janssen, Maarten |
| Abstract: | This paper analyses the incentives of manufacturers to discriminate between exante symmetric retailers who compete for consumers with different search cost. By discriminating, a manufacturer indirectly screens searching consumers, creates more retail competition, increases its profits, but lowers consumer welfare. Low-cost retailers sell to a disproportionate share of low search cost consumers, providing strong incentives to compete; high-cost retailers also lower margins given their smaller customer base. For wholesale price discrimination to be an equilibrium outcome, some form of commitment is necessary. Legislation requiring sales at the recommended retail price serves as such a commitment device, making consumers worse off. |
| Keywords: | consumer search; double marginalization; Vertical Relations; Wholesale Price Discrimination. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12945&r=com |
| By: | Laura Alfaro; Nick Bloom; Paola Conconi; Harald Fadinger; Patrick Legros; Andrew F. Newman; Raffaella Sadun; John Van Reenen |
| Abstract: | Little is known theoretically, and even less empirically, about the relationship between firm boundaries and the allocation of decision rights within firms. We develop a model in which firms choose which suppliers to integrate and whether to delegate decisions to integrated suppliers. We test the predictions of the model using a novel dataset that combines measures of vertical integration and delegation for a large set of firms from many countries and industries. In line with the model’s predictions, we obtain three main results: (i) integration and delegation co-vary positively; (ii) producers are more likely to integrate suppliers in input sectors with greater productivity variation (as the option value of integration is greater); and (iii) producers are more likely to integrate suppliers of more important inputs and to delegate decisions to them. |
| Keywords: | Vertical integration, delegation, real options, supply assurance |
| JEL: | D2 L2 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_017_2018&r=com |
| By: | Thomas W. Quan (University of Georgia); Kevin R. Williams (Cowles Foundation, Yale University) |
| Abstract: | Online retail gives consumers access to an astonishing variety of products. However, the additional value created by this variety depends on the extent to which local retailers already satisfy local demand. To quantify the gains and account for local demand, we use detailed data from an online retailer and propose methodology to address a common issue in such data- sparsity of local sales due to sampling and a signi?cant number of local zeros. Our estimates indicate products face substantial demand heterogeneity across markets; as a result, we ?nd gains from online variety that are 45% lower than previous studies. |
| Keywords: | Product Variety, Demand Estimation, Long Tail, Online Retail |
| JEL: | C13 L67 L81 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2054r3&r=com |
| By: | David Bounie (Télécom ParisTech); Antoine Dubus (Télécom ParisTech); Patrick Waelbroeck (Ecole Nationale Supérieure des Télécommunications de Bretagne) |
| Abstract: | This paper investigates the strategies of a data broker in selling information to one or to two competing firms that can price-discriminate consumers. The data broker can strategically choose any segment of the consumer demand (information structure) to sell to firms that implement third-degree price-discrimination. We show that the equilibrium profits of the data broker are maximized when (1) information identifies the consumers with the highest willingness to pay; (2) consumers with a low willingness to pay remain unidentified; (3) the data broker sells two symmetrical information structures. The data broker therefore strategically sells partial information on consumers in order to soften competition between firms. Extending the baseline model, we prove that these results hold under first-degree price-discrimination. |
| Keywords: | Data broker,Information Structure,Price-discrimination |
| Date: | 2018–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01794886&r=com |
| By: | Imke Reimers (Northeastern University); Benjamin R. Shiller (Brandeis University) |
| Abstract: | Concerns about anti-competitive effects of proprietary data collection have motivated recent European data portability laws. We investigate such concerns and search for evidence of direct benefits of data collection in the context of Pay How You Drive (PHYD) auto insurance, which offers tailored discounts to drivers monitored by telematics devices. We exploit the staggered entry of PHYD insurance across states and insurers in a difference-in-differences framework, and we replicate the main findings using state insurance regulations as instruments for entry timing. We find a meaningful impact of PHYD programs on fatal accidents, but we find no evidence of antitrust concerns. |
| Keywords: | Proprietary data, data portability, oligopoly, economic competition, asymmetric information |
| JEL: | D43 D82 L13 L40 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:119r&r=com |
| By: | Hung-Hao Chang; Chad D. Meyerhoefer |
| Abstract: | We investigate the impact of access to convenience stores and competition between convenience store chains on medical care use and expenditures in Taiwan; the country with the highest density of convenience stores in the world. Our study makes use of insurance claims from 0.85 million individuals enrolled in Taiwan’s national health insurance program from 2002-2012 and administrative data on convenience store chain sales. While we find that both greater store accessibility and higher levels of inter-brand competition reduce the use and cost of outpatient medical services and prescription drugs, healthcare utilization is more responsive to changes in competition. Since convenience stores in Taiwan are typically the healthier option for ready-to-eat food, we postulate that the decline in medical care utilization is driven by a reduction in convenience store prices and increase in service quality relative to other food outlets. This is supported by findings from survey data indicating that convenience store competition is associated with greater consumption of more healthy foods, lower consumption of less healthy foods, and decreases in obesity rates. While the effects we find are precisely estimated, they are small in magnitude, with the increase in convenience store competition experienced by Taiwan over a 10-year period reducing medical expenditures on outpatient services and on prescription drugs by around one half of one percent. |
| JEL: | H51 I12 L81 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24628&r=com |
| By: | Wouter Zant (VU Amsterdam) |
| Abstract: | We measure the impact of search costs on farmers’ and traders’ transaction prices in Mozambique by investigating to what extent the introduction of mobile phones has affected the margin between recorded maize producer and retail market prices, and by exploring if producers or traders benefit from possible margin changes. Estimations are based on weekly producer and retail market prices of white maize grain, from July 1997 to December 2009, for 15 major producer markets in Mozambique. We find a margin increase that varies from 4.5% to 9.6%, supporting a bias of benefits of mobile phones towards maize traders and hence not less asymmetric information and increased trader competition, but rather the reverse. Impacts on producer and market prices independently vary, but confirm the margin results. Estimation results are robust for non-random rollout of the mobile phone network and various other threats. |
| Keywords: | search costs; transport costs; mobile phones; agricultural markets; maize prices; Mozambique; sub-Sahara Africa |
| JEL: | O13 O33 Q11 Q13 |
| Date: | 2018–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180055&r=com |
| By: | Klein, Tobias |
| Abstract: | We use high frequency data on TV and radio advertising together with data on online sales for lottery tickets to measure the short run effects of advertising. We find them to be strong and to last for up to about 4 hours. They are the bigger the less time there is until the draw. We develop the argument that this finding is consistent with the idea that advertisements remind consumers to buy a ticket and that consumers value this. Then, we point out that in terms of timing the interests of the firm and the consumers are aligned: consumers wish to be reminded in a way that makes them most likely to consider buying a lottery ticket. We present direct evidence that this does not only affect the timing of purchases, but leads to market expansion. Then, we develop a tractable dynamic structural model of consumer behavior, estimate the parameters of this model and simulate the effects of a number of counterfactual dynamic advertising strategies. We find that relative to the actual schedule it would be valued by the consumers and profitable for the firm to spread advertising less over time and move it to the last days before the draw. |
| Keywords: | adoption model; dynamic demand; limited attention; reminder advertising |
| JEL: | D12 D83 M37 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12948&r=com |
| By: | Paolo Pertile; Simona Gamba; Martin Forster |
| Abstract: | We present a model of the strategic interaction among authorities regulating pharmaceutical prices in different countries and the R&D investment decisions of pharmaceutical firms. Regulators’ decisions affect consumer surplus directly, via prices, and indirectly via firms’ profits and R&D investment policies, which in turn affect patient health. The positive externality of a price increase in one country provides an incentive for other countries to free-ride, and we show how country-level characteristics affect optimal pricing decisions and equilibria. Our theoretical predictions are tested using price data for a set of 70 cancer drugs in 25 OECD countries. We find evidence of behaviour that is consistent with the free-riding hypothesis and which, in line with the theoretical predictions, differs according to country-level characteristics. Countries with comparatively large market shares tend to react to increases in other countries’ prices by lowering their own prices; in countries with comparatively small market shares, regulators’ decisions are consistent with the objective of introducing the product at as low a price as possible. We discuss the policy implications of our results for incentivising global pharmaceutical R&D and the recent proposal to move towards a joint pharmaceutical procurement process at the European level. |
| Keywords: | quality; |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:18/04&r=com |
| By: | Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur) |
| Abstract: | This paper analyses how competition law and economics tackles the issue of private economic power. Through a historical approach based on the evolutions of the economic thoughts and courts decisional practices, we stress a tension between recommendations based on a definition of the competitive order as a guarantee of access to market or of pluralism, and normative prescriptions based the consumer welfare maximisation, as the competition law enforcement unique criterion. We illustrate this debates with examples provided by digital markets and we open the discussion to the media sector. |
| Abstract: | Il s’agit d’interroger la façon dont l’économie du droit de la concurrence se saisit de la question des pouvoirs économiques privés. Au travers d’une analyse historique, les prescriptions de la science économique et les pratiques décisionnelles américaine et européenne sont interrogées. Nous mettons en évidence une tension entre les recommandations qui découlent d’une défense de l’ordre concurrentiel conçu comme une garantie d’accès au marché et de pluralisme, et celles qui assignent à ce dernier le seul et unique objectif de la maximisation du bien-être du consommateur. Nous illustrons notre propos par une analyse de ces enjeux pour les marchés numériques et par une application au secteur des médias. |
| Keywords: | private economic powers,competition process,consumer welfare,media,capture,pouvoirs économiques privés,processus de concurrence,bien-être du consommateur,médias |
| Date: | 2018–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01784851&r=com |
| By: | Bimpikis, Kostas (Stanford University); Candogan, Ozan (University of Chicago); Saban, Daniela (Stanford University) |
| Abstract: | We explore spatial price discrimination in the context of a ride-sharing platform that serves a network of locations. Riders are heterogeneous in terms of their destination preferences and their willingness to pay for receiving service. Drivers decide whether, when, and where to provide service so as to maximize their expected earnings, given the platform's prices. Our findings highlight the impact of the demand pattern on the platform's prices, profits, and the induced consumer surplus. In particular, we establish that profits and consumer surplus are maximized when the demand pattern is "balanced" across the network*s locations. In addition, we show that they both increase monotonically with the balancedness of the demand pattern (as formalized by its structural properties). Furthermore, if the demand pattern is not balanced, the platform can benefit substantially from pricing rides differently depending on the location they originate from. Finally, we consider a number of alternative pricing and compensation schemes that are commonly used in practice and explore their performance for the platform. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:repec:ecl:stabus:3482&r=com |
| By: | Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Enrico Marvasi (Politecnico di Milano,) |
| Abstract: | We extend the protection for sale model of Grossman and Helpman (1994) by introducing a general model of monopolistic competition with variable markups and incomplete pass-through. We show that the structure of protection emerging in the political equilibrium not only depends on the weight attached by the government to consumer welfare when making its policy decision, but also on the degree of market power of firms and on the terms-of-trade variations due to the degree of pass-through. Our results highlight the importance of demand characteristics in shaping the structure of protection and are consistent with the occurring of protectionism also in unorganized industries. |
| Keywords: | Protection for Sale; Monopolistic Competition; Incomplete Pass-Through; Endogenous Markups. |
| JEL: | F12 F13 |
| Date: | 2018–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:435&r=com |
| By: | De Donder, Philippe; Soteri, Soterios |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32660&r=com |
| By: | Gomes, Renato; Pavan, Alessandro |
| Abstract: | Recent technologies enable matching intermediaries to engage in unprecedented levels of targeting, whereby matches finely depend on the agents' characteristics, but also favor customized (i.e., match-specific) pricing. Yet, novel regulations on the transfer of personal data, as well as a renewed trend towards market decentralization, are expected to hinder price customization and favor uniform pricing (whereby the price of a match charged to agents on a given side of a market is invariant in the agents' observable characteristics). To assess the impact of these developments, we build a matching model in which agents' preferences are both vertically and horizontally differentiated. Mirroring current practices, we show how, absent regulations, platforms maximize profits through price customization, link the latter to structural elasticities, and assess the targeting effects of market power. Perhaps surprisingly, we show that uniform pricing may either increase or decrease targeting levels and consumer welfare, depending on testable properties of demand. The analysis has implications for online shopping, ad-exchanges, and media platforms. |
| Keywords: | asymmetric information; incentives; Many-to-many matching; platforms; price discrimination |
| JEL: | D82 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12936&r=com |
| By: | Gérard Mondello (Groupe de Recherche en Droit, Economie et Gestion); Evens Salies (Observatoire français des conjonctures économiques) |
| Abstract: | This article extends the unilateral accident standard model to allow for Cournot competition. Assuming risk-neutrality for the regulator and injurers, it analyzes three liability regimes: strict liability, negligence rule, and strict liability with administrative authorization or permits systems. Under competition the equivalence between negligence rule and strict liability no longer holds, and negligence insures a better level of social care. However, enforcing both a permit system and strict liability restores equivalence between liability regimes. Furthermore, whatever the current regime, competition leads to lower the global safety level of industry. Indeed, the stronger firm may benefit from safety rents, which they may use to increase production rather than maintaining a high level of safety. |
| Keywords: | Cournot competition; Permit system; Strict liability; Current regime; Industry |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1jki13i7298a9knanhskpugh3&r=com |
| By: | Persson, Lars (Research Institute of Industrial Economics (IFN)); Seiler, Thomas (Stockholm School of Economics) |
| Abstract: | We provide empirical evidence that uncertainty (rather than risk) and optimism are distinctive characteristics of high-impact entrepreneurial firms (recently listed firms) relative to old, incumbent firms. Based on this evidence, we construct an entrepreneurial entry predation model with uncertainty. We show that entrepreneurial optimism can mitigate problems associated with strong incumbents' attempts to protect markets using predatory threats. Entrepreneurial optimism can also create a strategic advantage for entrepreneurs since incumbents may react by being less aggressive in product market interactions, which will benefit not only the profitability of the entrepreneur's venture but also consumers via lower prices |
| Keywords: | Uncertainty; Optimism; Entrepreneurial firms; Predation; Positive externalities; Automatic textual analysis |
| JEL: | L20 L26 M20 O30 |
| Date: | 2018–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1218&r=com |
| By: | Lionel Nesta (Observatoire français des conjonctures économiques); Stefano Schiavo (Observatoire français des conjonctures économiques) |
| Abstract: | The paper investigates the impact of import competition on rent-sharing between firms and employees. First, by applying recent advances in the estimation of price-costs margins to a large panel of French manufacturing firms for the period 1993–2007,we are able to classify each firm into labor- and product-market regimes based on the presence/absence of market power. Second, we concentrate on firms that operate in an efficient bargaining framework to study the effect of import penetration on workers’ bargaining power. We find that French imports from other OECD countries have a negative effect on bargaining power, whereas the impact of imports from low wage countries is more muted. By providing firm-level evidence on the relationship between international trade and rent sharing, the paper sheds new light on the effect of trade liberalization on the labor market. |
| Keywords: | Firm heterogeneity; Import competition; Mark-up; Wage bargaining |
| JEL: | F14 F16 J50 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2d13t3kn6v8mop0no1md4bjn1i&r=com |