|
on Industrial Competition |
| By: | Stiebale, Joel; Szücs, Florian |
| Abstract: | This paper analyzes the effects of mergers and acquisitions on the markups of non-merging rival firms across a broad set of industries. We exploit expert market definitions from the European Commission's merger decisions to identify relevant competitors in narrowly defined product markets. Applying recent methodological advances in the estimation of production functions, we estimate markups as a measure of market power. Our results indicate that rivals significantly increase their markups after mergers relative to a matched control group. Consistent with increases in market power, the effects are particularly pronounced in markets with few players, high initial markups and concentration. We also provide evidence that merger rivals reduce their employment, sales and investment, while their profits increase around the time of a merger. |
| Keywords: | Merger,Markups,Productivity,Market Power,Innovation,Investment |
| JEL: | D22 L40 L13 O31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:323&r=all |
| By: | Darai, D.; Roux, C.; Schneider, F. |
| Abstract: | We study whether firms’ collusive ability influences their incentives to merge: when tacit collusion is unsuccessful, firms may merge to reduce competitive pressure. We run a series of Bertrand oligopoly experiments where the participants decide whether, when, and to whom they send merger bids. Our experimental design allows us to observe (i) when and to whom mergers are proposed, (ii) when and by whom merger offers are accepted, and (iii) the effect on prices when mergers occur in this way. Our findings suggest that firms send more merger offers when prices are closer to marginal costs. Maverick firms that cut prices and thereby fuel competition are the predominant (but reluctant) receivers of these offers. |
| Keywords: | Tacit collusion, Mavericks, Bertrand oligopoly, Experiments |
| JEL: | C91 D43 K21 L13 L41 |
| Date: | 2019–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1984&r=all |
| By: | Gustavo Grullon (Rice University - Jesse H. Jones Graduate School of Business); Yelena Larkin (York University - Schulich School of Business); Roni Michaely (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute) |
| Abstract: | In the last two decades, over 75% of U.S. industries have experienced an increase in concentration levels. We find that firms in industries with the largest increases in product market concentration have enjoyed higher profit margins and more profitable M&A deals. At the same time, we do not find evidence of a significant increase in operational efficiency, which suggests that market power is becoming an important source of value. These findings are robust to the inclusion of private firms, factors that account for foreign competition, as well as to the use of alternative measures of concentration. We also show that the higher profit margins associated with an increase in concentration are reflected in higher returns to shareholders. Overall, our results suggest that the nature of U.S. product markets has undergone a shift that has potentially weakened competition across the majority of industries. |
| Keywords: | industry concentration; HHI; product markets; profit margins; publicly-traded firms; M&A; antitrust |
| JEL: | G18 G30 G34 L40 L10 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1941&r=all |
| By: | Danial Asmat (Antitrust Division, U.S. Department of Justice) |
| Abstract: | This paper formulates a theory of collusion with learning-by-doing and multiproduct competition and tests it with data from an explicit cartel. The model shows that collusion is harder to sustain on a new product generation, where learning is high, than an old generation, where learning is low. Collusion on the old generation shifts demand toward the new generation, raising its output. Empirical analysis exploits variation between cartelization and competition in the DRAM market to identify counterfactual quantities and prices. Consistent with the model, cartel firms cut output of older generations by up to 50% and increased output of newer generations manifold. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:doj:eagpap:201907&r=all |
| By: | Matthew Weinberg (The Ohio State University, Department of); Gloria Sheu (US Department of Justice, Antitrust Division); Nathan Miller (Georgetown University) |
| Abstract: | We examine an infinitely-repeated game of oligopoly price leadership in which each period one firm, the market leader, proposes a supermarkup over Nash-Bertrand prices. The supermarkup is chosen to maximize the leader's profit subject to all firms' incentive compatibility constraints (ICCs). We provide conditions under which the equilibrium supermarkup can be recovered from aggregate data on price and quantities. We apply the model to the U.S. beer industry over 2005-2011 and estimate that ABI and MillerCoors implemented supermarkups of $\$0.60$ in the wake of the 2008 Miller/Coors merger. Counterfactual simulations demonstrate an ICC binds, as profit is greater with even higher supermarkups. We use the implied equality constraint to jointly identify a discount factor and the antitrust risk, the remaining structural parameters. We then explore the coordinated effects of ABI's acquisition of Grupo Modelo. Without divestitures, the merger would have relaxed ICCs, resulting in substantially higher prices. Finally, we return to the Miller/Coors merger. For many parameter values, no supermarkup satisfies ICCs without the merger. Thus, the merger may have be pivotal in generating the observed price leadership behavior. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1210&r=all |
| By: | Johannes Johnen; David Ronayne |
| Abstract: | We study a canonical model of simultaneous price competition between firms that sell a homogeneous good to consumers who are characterized by the number of prices they are exogenously aware of. This setting subsumes many used in the literature over the past several decades. Our result shows that there is a unique equilibrium if and only if there exist some consumers who are aware of exactly two prices. The equilibrium we derive is in symmetric mixed strategies. Further¬more, when there are no consumers aware of exactly two prices, we show there is an uncountable-infinity of asymmetric equilibria in addition to the symmetric equilibrium. Our result shows that the paradigm generically produces a unique equilibrium; that the commonly-sought symmetric equilibrium is robust; and that the asymmetric equilibria are knife-edge phenomena. |
| Keywords: | price competition; price dispersion; unique equilibrium |
| JEL: | D43 L11 |
| Date: | 2019–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:874&r=all |
| By: | David Ronayne; David P. Myatt |
| Abstract: | We propose a two-stage replacement for established “clearinghouse" or “captive and shopper" pricing models: second-stage retail prices are constrained by first-stage list prices. In contrast to the mixed-strategy equilibria of single-stage games, a unique profile of distinct prices is supported by the play of pure strategies along the equilibrium path, and so we predict stable price dispersion. We find novel results in applications to models of sales, product prominence, advertising, and consumer search. |
| Keywords: | price dispersion, clearinghouse models, prominence, advertising, buyer search |
| Date: | 2019–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:873&r=all |
| By: | Urs Trinkner; Christian Jaag; Andreas Haller |
| Abstract: | Incumbent operators providing universal services are increasingly active in competitive markets. Prices of universal services (US) products are often regulated. The traditional solution is to regulate the US products by separating accounts between US and non-US products and imposing a product-specific rate-of-return regulation on US products with fully allocated cost based on activities (ABC) as a point of reference. In this paper we analyze the competitive and welfare effects of the Swiss net cost balancing mechanism (NCB). NCB is applied since 2013 and allows the regulated USP to reallocate its net cost of the universal service obligation through internal transfer payments. The analysis in Section 2 leads to the conclusion that NCB is as least as strict as anti-cross-subsidization rules based on Faulhaber. If general competition law applies to non-universal services, NCB can be considered stricter. NCB can therefore be seen as an implementation of the Faulhaber rule. We further find that NCB increases welfare as compared to ABC costing clearly. The welfare increases are induced by a more market oriented, but cross-subsidy free USP pricing. |
| Keywords: | USO, cost allocation, net cost rebalancing, ramsey pricing, ABC |
| JEL: | L51 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:chc:wpaper:0064&r=all |
| By: | Mark Armstrong; John Vickers |
| Abstract: | We study mixed-strategy equilibrium pricing in oligopoly settings where con-sumers vary in the set of suppliers they consider for their purchase-some being captive to a particular firm, some consider two particular firms, and so on. In the case of "nested reach" we find equilibria, unlike those in more standard models, in which firms are ranked in terms of the prices they might charge. We character-ize equilibria in the three-firm case, and contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer interaction with firms matter for competitive outcomes. |
| JEL: | C72 D43 D83 L15 |
| Date: | 2018–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:864&r=all |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Dept. of Economics, Yale University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | We consider demand function competition with a ï¬ nite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across all information structures. |
| Keywords: | Demand Function Competition, Supply Function Competition, Price Impact, Market Power, Incomplete Information, Price Volatility |
| JEL: | C72 D43 D44 D83 G12 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2200&r=all |
| By: | Gregor Jarosch; Jan Sebastian Nimczik; Isaac Sorkin |
| Abstract: | We build a model where firm size is a source of labor market power. The key mechanism is that a granular employer can eliminate its own vacancies from a worker's outside option in the wage bargain. Hence, a granular employer does not compete with itself. We show how wages depend on employment concentration and then use the model to quantify the effects of granular market power. In Austrian micro-data, we find that granular market power depresses wages by about ten percent and can explain 40 percent of the observed decline in the labor share from 1997 to 2015. Mergers decrease competition for workers and reduce wages even at non-merging firms. |
| JEL: | E2 J01 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26239&r=all |
| By: | Michele Bisceglia (Department of Economics, Management and Quantitative Methods, University of Bergamo;); Roberto Cellini (Department of Economics and Business, University of Catania); Luigi Siciliani (Department of Economics and Related Studies, University of York); Odd Rune Straume (Department of Economics/NIPE, University of Minho,) |
| Abstract: | We consider a model of optimal price regulation in markets where demand is sluggish and asymmetric providers compete on quality. Using a spatial model, which is suitable to investigate the health care and education sector, we investigate within a dynamic set-up the scope for price premiums or penalties on volume. We show that the socially optimal time path of quality provision o¤ the steady state can be replicated by a simple dynamic pricing rule where the dynamic part of the rule is ex-ante non-discriminatory in the sense that the price premium or penalty on volume is common across providers, despite their differing production costs. Whether the price schedule involves a penalty or a premium on volume relates to two concerns regarding production costs and consumer bene ts, which go in opposite directions. Price adjustments over time occur only through the price penalty or premium, not time directly, which highlights the simplicity and thus applicability of this regulation scheme. |
| Keywords: | Price regulation; Quality; Di¤erential games |
| JEL: | C73 I11 I14 L13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:06/2019&r=all |
| By: | Daskalopoulou, Irene F. |
| Abstract: | Competition in the cultural and creative industries is much dependent upon product and service differentiation. Differentiation is about the unique features that are embedded in the cultural products themselves. These unique features relate to and determine, the value that consumers ascribe to cultural products. Authenticity is commonly used to underlie the uniqueness of a cultural product and is thus a sign of a thing worthy of admiration. Within this context the current study undertakes a comparison of practices related to the way in which authenticity in the paintings’ market is handled. The aim is to sketch policy interventions for effectively regulating the shadow economy in this market. It is argued that good regulations are necessary and if enforced, positive outcomes in terms of the paintings’ market turnover and employment levels might be generated. In particular, we discuss interventions that would transform the threat of an illegal fake market into an opportunity for market growth through the development of a ‘parallel authentic copy market’. Under certain conditions such a policy intervention could have direct and indirect positive effects via: a) the incorporation of an important part of the activities of the shadow economy in the official market, b) the use of a parallel market to protect consumers and their welfare and c) the use of the parallel market to strategically foster growth in the cultural industry at large. Given the economic significance of the cultural industries at both the national and the EU level and the commitment of the later to support the industry’s growth insights, as to how we might best regulate the market in line with such directions, are critical. |
| Keywords: | authenticity, cultural industries, creative industries, economic policy, market regulation, shadow economy |
| JEL: | L52 M31 Z18 |
| Date: | 2019–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95805&r=all |
| By: | Chang-Tai Hsieh (University of Chicago); Munseob Lee (University of California San Diego); Yongseok Shin (Washington University in St. Louis) |
| Abstract: | A business group or conglomerate is a group of firms owned and operated by a common source of control. Business groups typically span multiple industries and countries, and they are dominant actors in many developed and developing economies. Despite their prevalence and economic importance, they have been subjected to very little economic research. The overarching theme of our proposed research is the following questions: (1) why is a business group formed—which extends the theory of the firm; (2) whether or not business groups have positive impact on allocative efficiency both at the intensive margin (allocation of resources across firms/establishments) and at the extensive margin (entry and exit of firms/establishments), especially in the presence of the agency problem between controlling shareholders and ``outside’’ shareholders; (3) whether or not the potential gains from better resource allocation within business groups come at the expense of other firms not belonging to the groups, for example because of distortionary market power; (4) whether or not the presence of dominant business groups can be a destabilizing force for the macroeconomy that amplifies firm/sector-specific shocks. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:550&r=all |
| By: | Anna D’Annunzio (TBS Business School and CSEF); Mohammed Mardan (Norwegian School of Economics, CESifo and NoCeT); Antonio Russo (ETH Zürich) |
| Abstract: | We study commodity taxation in markets where firms, such as Internet Service Providers, energy suppliers and payment card platforms, adopt multi-part tariffs. We show that ad valorem taxes can correct underprovision and hence increase welfare, provided the government applies differentiated tax rates to the usage and access parts of the tariff. We obtain this result in different settings, including vertically interlinked markets, markets where firms adopt menus of tariffs to screen consumers and where they compete with multi-part tariffs. Our results suggest that exempting these markets from taxation may be inefficient. |
| Keywords: | Commodity taxation, multi-part tariffs, price discrimination |
| JEL: | D42 D61 H21 |
| Date: | 2019–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:540&r=all |
| By: | Garrett, Daniel F. |
| Abstract: | Some sellers display high "regular" prices, but mark down these prices the vast majority of the time, advertising the good as "on sale" or "discounted". This note suggests a framework for understanding the practice, emphasizing the role of buyer uncertainty about their future valuations for the good. We argue that so-called "regular" prices set buyers' expectations regarding future prices, expectations that need not be tethered to the prices actually set. By manipulating upwards buyers' expectations of future prices, the seller can increase demand for the good at the current "sale" price, increasing profits |
| Keywords: | fake sales, dynamic pricing, value uncertainty |
| JEL: | D82 L12 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:123494&r=all |
| By: | Denis Claude (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE]); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | This paper explores the link between upstream input pricing and downstream strategic delegation decisions. It complements earlier contributions by studying how environmental emissions and tax payments alter the incentives business owners have to divert their managers from profit maximization in favor of sales revenue generation. Two scenarios are compared depending on whether the upstream supplier precommits to a fixed input price or adopts a flexible price strategy. Corresponding Subgame-Perfect Nash-Equilibria are characterized and elements of comparative statics analysis are presented. The analysis confirms that previous results—showing that a price precommitment makes the upstream supplier better off and downstream firms worse off—carry over to situations in which production generates pollution. |
| Keywords: | Managerial incentives,Vertical relations,Delegation,Precommitment,Externality |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-02283174&r=all |
| By: | Gullstrand, Joakim (Department of Economics, Lund University); Knutsson, Polina (Department of Economics, Lund University) |
| Abstract: | Exposure to international competition on a country level has been shown to improve the efficiency of domestic producers. We contribute to this literature by assessing whether the distance between producers and importers, within a country, matters for import competition effects at product level. Using detailed geographical information about the location of all manufacturing firms in Sweden during the period 2005–2014, we find strong evidence of an increased efficiency in the domestic production when imports surge, but that the effect diminishes with the distance between the producer and the importer. In addition to the importance of the geographical pattern within a country, we find that the average effect of import competition conceals large variations across firms and products. Highly productive firms respond to import competition by further improving efficiency, which, in turn, is transmitted to both a lower price and a higher markup. Firms are also more likely to drop fringe products while keeping core ones. Products undercut by low import prices in their proximity respond by lowering prices only, although highly efficient products resist this by a more pronounced improvement in the marginal cost, which, in turn, is transmitted to both a lower price and a higher markup. |
| Keywords: | Import competition; distance; firm-product performance |
| JEL: | F14 |
| Date: | 2019–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2019_013&r=all |
| By: | Frondel, Manuel; Horvath, Marco; Vance, Colin; Kihm, Alexander |
| Abstract: | Drawing on panel data on daily fuel prices covering over 5,000 filling stations in Germany, this paper documents a change in the stations' price setting behavior following the introduction of a legally mandated online price portal in 2013. Prior to the portal, positive asymmetry is found on the basis of error correction models, with prices following the "rockets and feathers" pattern that is typically found for fuels. In the aftermath of the portal, by contrast, negative asymmetry is observed: fuel price decreases in response to refinery price decreases are stronger than fuel price increases due to refinery price increases. |
| Keywords: | retail markets,competition,error correction model |
| JEL: | D12 Q41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:810&r=all |
| By: | Dan Cao (Georgetown University); Erick Sager (Federal Reserve Board); Henry Hyatt (US Census Bureau); Toshihiko Mukoyama (Georgetown University) |
| Abstract: | This paper analyzes firm growth along two margins: the extensive margin (adding more establishments) and intensive margin (adding more workers per establishment). We utilize administrative datasets to document the behavior of these two margins in relation to changes in the U.S. firm size distribution. Between 1990 and 2015, we find that the significant increase in average firm size was driven primarily by the expansion along the extensive margin, particularly in superstar firms. We develop a general equilibrium model of endogenous innovation that features both extensive and intensive margins of firm growth. We estimate the model to uncover the fundamental forces that caused the changes over this time period through the lens of our model. We find that, over time, the cost of innovations that lead to new establishments has declined for firms who are innovative in that dimension. Meanwhile, the duration that a firm can enjoy high growth through such innovation became shorter, and firm entry became more costly. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1484&r=all |
| By: | Varun Chakravarty (National Law University Raipur, India) |
| Abstract: | The paper deals with a comprehensive analysis of the evolution of vertical price restraints in the American, European and Indian market. Resale price maintenance refers to the efforts of a manufacturer to restrict the range of prices charged by a retailer of the manufacturer’s product. In this paper there will be an analysis of evolution of resale price maintenance in US with the inception of Sherman Act to Leegin Creative Leather case for maximum and minimum resale price maintenance. There will also be an analysis of evolution of US competition law from Per-se to Rule of reason with regard to incident of checking the anti-competitive market practice. A detailed analysis with respect to US, EU and Indian stand on competition law will be given in this research paper. |
| Keywords: | Resale price maintenance, Competition law, Rule of Reason |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:smo:cpaper:54vc&r=all |