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on Industrial Competition |
| By: | Patrice Bougette (Université Côte d'Azur, CNRS, GREDEG, France); Frédéric Marty (Université Côte d'Azur, CNRS, GREDEG, France) |
| Abstract: | This paper examines the interplay between transport and competition law within the EU, particularly focusing on case law in the context of liberalization. The transport sector, marked by natural monopolies, often requires specific regulation alongside competition law to address issues like exclusionary practices by incumbents. Despite liberalization efforts, dominant players may still hinder competition through control of essential infrastructure. The entry discusses legal and regulatory strategies to ensure fair market access and competition and considers broader socio-economic impacts such as regional development and environmental sustainability. |
| Keywords: | Competition Law, Liberalization, Natural Monopolies, Essential Infrastructure, Vertical Integration, Regulatory Frameworks |
| JEL: | L41 L43 K21 L51 R48 L92 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:gre:wpaper:2024-28 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Using the framework of a Hotelling linear market, we consider the impact of network connectivity (horizontal interoperability) between network goods on strategic R&D competition and profits. We first demonstrate that in the case of a fully covered (mature) market, as network connectivity increases, R&D activities decrease, but profits increase. Then, relaxing the assumption of market coverage, we demonstrate that in the case of a partially covered and uncovered (immature) market, as network connectivity increases, R&D activities at first decrease, and then increase given strong network externalities. Otherwise, the R&D activities monotonically increase. However, regardless of the strength of the network externalities, profits increase. Regarding quantity competition in the immature market, we obtain the same results in the case of price competition. We also consider the implication of network connectivity for market competitiveness. |
| Keywords: | innovation, Network externality, Connectivity, interoperability, R&D competition, Hotelling linear market, Fulfilled expectations, Lerner index |
| JEL: | L13 L15 L31 L32 D43 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:280 |
| By: | Carsten Eckel; Ina Charlotte Jäkel; Luca Macedoni; Raymond Riezman; Raymond G. Riezman |
| Abstract: | Using firm-level data on production and trade from Denmark, we document that firms frequently employ a strategy of entering new export markets with Carry-Along Trade (CAT), i.e., with products manufactured by other firms. This strategy is surprising because, empirically, CAT products have below average market shares and mark-ups, and trade models predict firms to focus on core products with large sales in export markets with additional fixed and variable costs. To rationalize this new stylized fact, we propose a model where CAT plays a pivotal role in enabling firms to learn about market conditions and assess market viability. In our framework, exporting own-produced core products requires upfront sunk entry investments that create a benefit of knowing the exact market conditions. Firms can learn these market conditions by either investing first based on expected market conditions, or by exporting CAT products that do not require additional investments. We provide empirical evidence in support of our mechanism by showing that entering with CAT is particularly prevalent (i) among small firms, (ii) in distant markets, and (iii) among firms with no prior exporting experience. |
| Keywords: | market entry, carry-along trade, delivery of own goods, learning |
| JEL: | F14 F12 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11340 |
| By: | Kurdoglu, Berkay |
| Abstract: | This study explores the critical role of market definition in antitrust and competition law, where defining the relevant market is fundamental for assessing competition between firms, products, and markets. Traditional methods for market definition, such as the SSNIP test, Critical Loss Analysis, and cross-elasticity of demand, rely on econometric models to evaluate substitutability and price sensitivity. However, these models face limitations, including challenges with endogeneity, data requirements, and the time-consuming nature of the process. Given these constraints, there is a growing interest in more efficient, data-driven approaches. This research delves into the use of clustering algorithms as a modern tool to enhance market definition in antitrust cases. By leveraging these advanced methods, the study aims to offer new insights into competitive landscapes and the evolving dynamics of market structures, contributing to a deeper understanding of rivalry relationships in both traditional and digital marketplaces. |
| Keywords: | Antitrust, Competition law, Market definition, Clustering algorithm |
| JEL: | D40 K21 L4 |
| Date: | 2023–11–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122340 |
| By: | Popp, Martin (Institute for Employment Research (IAB), Nuremberg) |
| Abstract: | Economists increasingly refer to monopsony power to reconcile the absence of negative employment effects of minimum wages with theory. However, systematic evidence for the monopsony argument is scarce. In this paper, I perform a comprehensive test of this argument by using labor market concentration as a proxy for monopsony power. Labor market concentration turns out substantial in Germany. Absent wage floors, higher concentration reduces wages and employment, reflecting monopsonistic conduct of firms. Sectoral minimum wages lead to negative employment effects in slightly concentrated or more competitive labor markets. This effect weakens with increasing concentration and, ultimately, becomes positive in highly concentrated or monopsonistic markets. Overall, the results lend empirical support to the monopsony argument, implying that conventional minimum wage effects on employment conceal heterogeneity across market forms. |
| Keywords: | minimum wage, monopsony power, labor market concentration, markdown |
| JEL: | J42 J38 D41 J23 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17357 |
| By: | Jeanne Mouton (Université Côte d'Azur, CNRS, GREDEG, France; European Commission); Benoit Rottembourg (Inria, Regalia) |
| Abstract: | In a global context where competition authorities are investigating and sanctioning Amazon's marketplace for practices of self-preferencing at the expense of their business users and consumers (Italian AGCM 2021, EU Commission 2022, UK CMA 2024, US FTC on-going since 2023), we observe a trend of imposing remedies on dominant players in digital markets. In addition, the Digital Market Act, shifting from an ex-post enforcement approach to ex-ante obligations on designated gatekeepers, is strengthening auditing power over these gatekeepers, which risk heavier penalties in the event of non-compliance. Therefore, competition authorities and regulators need tools to audit the compliance of these dominant players in the e-commerce sector over the obligations and remedies they are imposing on dynamic, and personalized algorithms. Most of these algorithms embed Machine-Learning components, introducing opacity and potentially biases in the decision-making process. The aim of the paper is to explore the benefits of using black-box auditing techniques to provide insights into the behavior of these online algorithms. We anchor our research in the literature of product prominence from vertically integrated players, of choice ranking, and of the specific literature related to Amazon search ranking, automatic pricing and Buy Box 's algorithms. Through a study of the pricing and ranking of several thousand products on Amazon, from 2017 to 2023, we illustrate the potential of surrogate models. While our dataset only covers some categories on Amazon.fr, the large number of competitions allowed us to demonstrate, with a 94% accuracy, that the variable is Amazon, or variables correlated to it, had a positive effect on winning Buy Box before mid-2022, and that this positive effect has decreased after mid-2022. In our research, the machine learnings models revealed a significantly higher degree of accuracy and sensitivity compared to a logistic regression, opening the discussion on the added value and role of surrogate models based on machine learning techniques in guiding the auditor, as well as raising the question of their probative value in the regulatory context. |
| Keywords: | algorithms, ranking algorithms, digital markets, online marketplace, competition law, audit, machine learning |
| JEL: | K21 L41 L51 L81 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:gre:wpaper:2024-27 |
| By: | Wehner, Jasmin; Feil, Jan-Henning; Yu, Xiaohua |
| Abstract: | Market power in economic theory is defined as deviations from marginal cost pricing, which results in unfair competition and welfare losses. In complex agri-food supply chains, the exercise of market power is a significant contributor to welfare losses, as multiple actors throughout the chain can exert such power. However, the potential dual role of dairy processors—as both buyers in the raw milk market and sellers in the output market—has received little attention so far. Using a panel data set with 323 observations from major German dairy processors between the years 2010 and 2021, we show that dairy processors exercise both, oligopsonistic as well as oligopolistic market power. Results suggest that dairy processors take advantage of their central position in the dairy supply chain, and buy milk from dairy farmers 9.2 percent below the value of the marginal product and sell processed milk to retailers 1.1 percent above the marginal costs. We demonstrate that it is important to incorporate the dual role of supply chain actors in market power analyses. In order to reduce welfare losses generated by market power, we recommend that the federal cartel authority should monitor market actors within the dairy supply chain continuously and consider the dual role of market actors in their reports and recommendations to the government. |
| Keywords: | Dairy Farming, Dairy Production/Industries, Industrial Organization |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:ags:gausfs:347738 |
| By: | Masagus M. Ridhwan (Bank Indonesia); Dionisius A. Narjoko (Economic Research Institute for ASEAN and East Asia (ERIA)); Krisna Gupta (Politeknik APP Jakarta) |
| Abstract: | This study uses Indonesia as a case study to address this issue of product market competition and price determination in the food and beverage industry. It utilizes the plant-level data of the food and beverage industry over the period 2017-2021 and estimates the markup using the recent method notably De Loecker-Warzynksi (2012). The study found a declining and stable pattern of industrial concentration over a long-term period from 2000 to 2021, which indicates a more or less moderate competition between firms in product markets of the industry in general. The econometric exercise found a positive relationship between industrial (or market) concentration and either price cost margin or markup, suggesting the potential influence of market power on the extent of profitability in the industry. This study however found no evidence of the relationship between the two variables and price. The findings of this study suggest that policy towards the food and beverage industry should focus on monitoring the extent and dynamics of product market competition as it found some degree of the exercise of market power. |
| Keywords: | Product market competition, industrial concentration, mark-up, price, food and beverage industry |
| JEL: | A11 B11 C11 D11 F11 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:idn:wpaper:wp032023 |
| By: | Jiajun Meng; Jing Chen; Dongfang Zhao; Lin Liu |
| Abstract: | Federated learning (FL) is a collaborative technique for training large-scale models while protecting user data privacy. Despite its substantial benefits, the free-riding behavior raises a major challenge for the formation of FL, especially in competitive markets. Our paper explores this under-explored issue on how the free-riding behavior in a competitive market affects firms' incentives to form FL. Competing firms can improve technologies through forming FL to increase the performance of their products, which in turn, affects consumers' product selection and market size. The key complication is whether the free-riding behavior discourages information contribution by participating firms and results in the decomposition of FL, and even free riding does not discourage information contribution, this does not necessarily mean that a firm wants to form FL in a competitive market because free riding may reshape the competition positions of each participating firm and thus forming FL may not be profitable. We build a parsimonious game theoretical model that captures these interactions and our analyses show several new findings. First, even in the presence of the free-riding behavior, competing firms under FL find it optimal to contribute all its available information. Second, the firm with less amount of information always finds it profitable to free ride; whether its rival (with more amount of information) have an incentive to form FL only when the level of competition or when the gap in information volume is not high. Third, when FL is formed, there exists an "All-Win" situation in which all stakeholders (participating firms, consumers, and social planner) benefit. Last, subsidizing by the free-riding firm can align its rival's incentive to form FL only when the level of competition is intermediate. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.12723 |
| By: | Javier Asensio (Department of Applied Economics, Univ. Autonoma de Barcelona, 08193 Bellaterra, Spain); Anna Matas (EDepartment of Applied Economics, Univ. Autonoma de Barcelona, 08193 Bellaterra, Spain) |
| Abstract: | Spain regulates its intercity bus market by means of a ‘competition for the market’ mechanism, whose design has been modified several times in the last years. This implies that current services are operated under contracts whose conditions are heterogeneous. We take advantage of such fact to empirically measure the impact that regulatory designs may have on fares paid by the users. The results show very large differences between routes whose contracts were awarded under relatively open conditions compared to regionally regulated routes or very old contracts whose concessions were extended and have not been retendered. |
| Keywords: | intercity buses, prices, tendering, competition for the market. |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:uab:wprdea:wpdea2401 |
| By: | Hanwei Huang; Kalina Manova; Oscar Perelló; Frank Pisch; Kalina B. Manova |
| Abstract: | We study the role of firm heterogeneity and imperfect competition for global production networks and the gains from trade. We develop a quantifiable trade model with two-sided firm heterogeneity, matching frictions, and oligopolistic competition upstream. More productive buyers endogenously match with more suppliers, thereby inducing tougher competition among them to enjoy lower input costs and superior performance. Transaction-level customs data confirms that downstream French and Chilean firms import higher values and quantities at lower prices as upstream Chinese markets become more competitive over time, with stronger responses by larger firms. Moreover, suppliers charge more diversified buyers lower mark-ups. Counterfactual analysis indicates that entry upstream benefits high-productivity buyers, while lower matching or trade costs benefit all buyers, with the biggest boost to mid-productivity buyers. All three shocks generate sizeable welfare gains, especially under package reforms. Global production networks thus mediate bigger effects and cross-border spillovers from industrial and trade policies. |
| Keywords: | production networks, global value chains, matching frictions, imperfect competition, gains from trade |
| JEL: | D24 F10 F12 F14 L11 L22 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11302 |
| By: | Yifan Wu; Ramesh Johari; Vasilis Syrgkanis; Gabriel Y. Weintraub |
| Abstract: | We consider a retailer running a switchback experiment for the price of a single product, with infinite supply. In each period, the seller chooses a price $p$ from a set of predefined prices that consist of a reference price and a few discounted price levels. The goal is to estimate the demand gradient at the reference price point, with the goal of adjusting the reference price to improve revenue after the experiment. In our model, in each period, a unit mass of buyers arrives on the market, with values distributed based on a time-varying process. Crucially, buyers are forward looking with a discounted utility and will choose to not purchase now if they expect to face a discounted price in the near future. We show that forward-looking demand introduces bias in naive estimators of the demand gradient, due to intertemporal interference. Furthermore, we prove that there is no estimator that uses data from price experiments with only two price points that can recover the correct demand gradient, even in the limit of an infinitely long experiment with an infinitesimal price discount. Moreover, we characterize the form of the bias of naive estimators. Finally, we show that with a simple three price level experiment, the seller can remove the bias due to strategic forward-looking behavior and construct an estimator for the demand gradient that asymptotically recovers the truth. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.14904 |
| By: | Jean-Marie Baland (University of Namur); François Woitrin (University of Namur); Cédric Duprez (National Bank of Belgium); Wouter Gelade (University of Namur) |
| Abstract: | In this paper, we develop a model of North-South trade to investigate the impact of Fair Trade. In the absence of a label, Southern producers are exploited by monopsonisitic traders who export to Northern markets. The Fair Trade label certifies the adoption of high labour standards and the payment of fair prices to producers in the South. We first show that the label is never Pareto-improving: the welfare of unlabeled producers in the South falls if and only if the welfare of Northern consumers increases. An expansion of Fair Trade tends to exacerbate those effects. We also show that the consequences of fair trade are systematically dampened in environments where traders enjoy more market power. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nam:defipp:2407 |
| By: | Andrew Dillon; Nicoló Tomaselli |
| Abstract: | Making markets is central to theories of development. In a randomized controlled trial, we vary an agricultural input market's organization to test whether time-inconsistent preferences, hard or soft commitments, and liquidity are constraints to market formation. The results show that markets organized earlier raise market sales consistent with farmer's measured time-inconsistent preferences. Liquidity in later spot markets are a substitute for earlier market timing. Farmer's demand is relatively inelastic to deposit levels in forward contracts. The experiment also directly tests the separability hypothesis where we find creating input markets alone does not lead to welfare improvements. |
| Keywords: | agriculture, market formation, welfare improvements, randomized controlled trial, development, farmers. |
| JEL: | Q12 L10 G21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2024_18.rdf |
| By: | Matthias Fleckenstein; Francis A. Longstaff |
| Abstract: | We study the relation between bank funding costs and the financial sophistication of bank customers. In doing this, we make use of a natural experiment that allows us to identify banks that—either intentionally or unintentionally—price time deposits in a way that can result in financially-unsophisticated customers essentially being shortchanged. We find that these banks have significantly lower deposit funding costs. These results provide evidence that having financially-unsophisticated customers may provide banks with substantial market power and be an important component of the value of a bank's deposit franchise. |
| JEL: | G2 G21 G51 G53 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33049 |