|
on Industrial Competition |
| By: | Zachary Nolan (Duke University, Department of Economics) |
| Abstract: | Consumers rely on platforms to access goods and services in many industries. Platform firms are often integrated, including their own goods in the menu of products offered to consumers. With the ability to impact both pricing and product assortment, these integrated firms face a trade-off between foreclosing third-party competitors to promote their integrated products and maintaining the value of the platform as a whole. This paper studies the pricing and assortment decisions of internet service providers (ISPs), which sell broadband internet access and TV packages. The ISP’s network connects consumers to third-party online video, which increases the value of internet access, but also competes with the ISP’s TV packages. I develop a model of consumer choice over ISP and third-party subscriptions and estimate the model using a novel household-level dataset of ISP subscriptions and usage. Next, I use a model of bundle pricing to study alternative pricing strategies in which internet prices vary with access to online video. I find that a strategy of blocking access to online video is not profitable due to the imbalance in the profit margins of TV and internet access. For low-margin TV firms, restricting online video usage leads to increased TV market share, but is offset by lower willingness-to-pay for internet access. When the ISP sets an additional access charge for online video, profits rise, and a decrease in the price charged for non-streaming internet access leads to previously unserved consumers gaining access to the internet. |
| Keywords: | Bundling, Platforms, Broadband, Internet, Online Video, Telecommunications Industry, Cord-cutting |
| JEL: | L11 L13 L96 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1906&r=all |
| By: | Johannes Johnen (CORE and LIDAM, Universite catholique de Louvain, Voie du Roman Pays 34, 1348 Ottignies-Louvain-la-Neuve, Belgium); Robert Somogyi (Budapest University of Technology and Economics, Department of Finance and Centre for Economic and Regional Studies, Magyar tudosok korutja 2, 1117 Budapest, Hungary) |
| Abstract: | On many online platforms, sellers offer products with additional fees and features. Platforms often deliberately shroud these fees from consumers. Examples are shipping fees, luggage fees on flight-aggregator websites, or resort fees and upgrades on hotel booking platforms. We explore the incentives of two-sided platforms to disclose additional fees and design a transparent marketplace when consumers might naively ignore shrouded additional fees. First, we find that platforms have stronger incentives to shroud additional fees than sellers in the absence of platforms. This result holds for monopoly platforms and in some competitive settings. Second, competition might induce platforms to regulate additional fees, which benefits consumers. We discuss connections to frequent practices like drip pricing, and platforms like Amazon or eBay regulating shipping fees. |
| Keywords: | Two-sided markets; Deceptive products; Platform competition; Consumer mistakes; Shrouded attributes |
| JEL: | D18 D42 D90 L13 L86 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1913&r=all |
| By: | Eric Darmon (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Thomas Le Texier (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Zhiwen Li (School of Management, Jiangsu University, China); Thierry Pénard (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France) |
| Abstract: | Antitrust authorities are particularly concerned with the dominant market position of tech giants such as Google, Facebook, and Amazon. These digital conglomerates are characterized by platform-based business models. However, despite their dominance, they are competing with each other to attract the same groups of users (developers, advertisers, end users, third party sellers, etc). They therefore have not only overlapping users (or sides) but also multimarket contact (MMC). In traditional one-sided markets, theory and empirical evidence show that MMC tends to relax competition. However, it is unclear whether this result holds under platform competition. This paper examines how MMC a ects pricing behaviour and pro ts of two-sided platforms. We develop a model of platform competition with two distinct markets. We assume that platforms only charge one group of users and provide free access to the other group. We argue that multimarket platforms also generate cross-market externalities that favour their users, in addition to well-known cross-group externalities. We nd that when cross-market externalities bene t the side that has free access, price competition is ercer and total welfare increases under MMC. However, when they bene t the side that pays to access the platform, the same result only holds if the cross-group externality and/or cross-market externality are suciently high. Finally, we show that a single-market platform competing with a multimarket platform may be deterred from entering the second market if cross-market or cross-group externalities are high. Our ndings contrast with the mutual forbearance hypothesis which claims that MMC relaxes competition in traditional (one-sided) industries. From a competition policy perspective, our paper provides an insight into how antitrust authorities should review conglomerate mergers and assess the e ects of diversi cation strategies of digital platforms. |
| Keywords: | two-sided markets, platform competition, multimarket contact, conglomerate, digital markets |
| JEL: | L13 L49 L86 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2019-07&r=all |
| By: | Danial Asmat (US Department of Justice, Antitrust Division, 450 5th Street NW, Washington, D.C. 20530); Chenyu Yang (University of Maryland, Tydings Hall, College Park, MD 20740) |
| Abstract: | Recent theory has examined the competitive effects of minimum advertised price (MAP) restrictions: manufacturer policies that can limit the ability of consumers to search for product prices. In this paper, we empirically study the effect of a major electronics manufacturer's MAP policy on the e-retail prices for its hardware products. Our approach leverages three types of data: contractual MAP values by product from 2011-2013; daily prices across its largest e-retailers; and the frequency of visits to each e-retailer from a representative household panel. We use a model of search with advertised prices to guide two types of findings. First, descriptive patterns of retailer prices are consistent with the market exhibiting consumer search costs, whereby it is costlier to search when price is below MAP than above MAP. Second, reduced form models imply that MAP diminishes the effect of increased retailer competition on decreased price dispersion, whereby prices are up to 6% more dispersed with MAP than without MAP. This is consistent with a model of inter-retailer price discrimination. |
| Keywords: | search cost; vertical restraint; advertised price; resale price maintenance; RPM; electronic retail |
| JEL: | L41 L81 D83 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1907&r=all |
| By: | Grant, Iris; Kesternich, Iris; Schumacher, Heiner; Van Biesebroeck, Johannes |
| Abstract: | An active empirical literature estimates entry threshold ratios, introduced by Bresnahan and Reiss (1991), to learn about the impact of firm entry on the strength of competition. These ratios measure the increase in minimum market size needed per firm to sustain one additional firm in the market. We show that there is no monotonic relationship between a change in the entry threshold ratio and a change in the strength of competition or in the price-cost margin. In the standard homogenous goods oligopoly model with linear or constant elasticity demand, the ratio is hump-shaped in the number of active firms, increasing at first and only when additional firms enter it gradually decreases and converges to one. Empirical applications should use caution and interpret changes in the entry threshold ratios as indicative of changes in competition only from the third entrant onwards. |
| Keywords: | Competition; Entry Threshold Ratio; Market entry; market size |
| JEL: | D43 L13 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14009&r=all |
| By: | Flavien Moreau (UCLA); Ludovic Panon (Sciences Po) |
| Abstract: | This paper develops a quantitative framework with heterogenous firms and endogenous markups to assess the macroeconomic implications of sectoral distortions to market structure, namely the existence of cartels. The direct negative welfare impact of cartels is compounded by increases in non-colluders’ prices (umbrella pricing). We then build a dataset on firm- and sector-level collusive cases constructed from the textual analysis of two decades of antitrust decisions taken by the French Competition Authority that we combine with exhaustive administrative firm microdata to test the predictions of our model. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:579&r=all |
| By: | Aguirre, Iñaki |
| Abstract: | This paper extends the traditional analysis of the output effect under monopoly (third-degree) price discrimination to a multimarket oligopoly. The author shows that under oligopoly price discrimination, differences in competitive pressure, measured by the number of firms, across markets are more important than the relative demand curvature when determining the effect on total output. |
| Keywords: | third-degree price discrimination,total output,oligopoly,welfare |
| JEL: | D42 L12 L13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201950&r=all |
| By: | Castanheira, Micael; Ornaghi, Carmine; Siotis, Georges |
| Abstract: | Delineating the boundaries of the relevant market plays a central role in the conduct of competition policy. In this paper, we focus on market definition in the pharmaceutical industry, where the introduction of generics represents a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry generates market-wide effects that shift the boundaries of the relevant antitrust market, but in unexpected ways. In a market where non-price competition is prevalent, entry may lead to a split of the (initial) relevant market. Hence, and paradoxically, entry may soften competitive constraints. We also highlight the importance of properly accounting for non-price instruments: ignoring them can easily lead to a flawed definition of the relevant antitrust market. We obtain these results by econometrically estimating time-varying substitution patterns in the pharmaceutical industry. |
| Keywords: | Antitrust; competition policy; Market Definition; Pharmaceutical industry |
| JEL: | D22 I11 L22 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14035&r=all |
| By: | Grant, Iris; Kesternich, Iris; Van Biesebroeck, Johannes |
| Abstract: | The demand for long-term care (LTC) services is growing strongly, mostly due to population aging. Historically, the German LTC market was dominated by non-profit nursing homes, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest that even small changes favoring either type could have a large impact on the fraction of markets that remain unserved or only served by a single type. |
| Keywords: | Competition; For-profit; Long-term care; non-profit |
| JEL: | I11 L13 L22 L33 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14005&r=all |
| By: | Vladimir Pavlov (The Wharton School, University of Pennsylvania, 3730 Walnut St, Philadelphia, PA 19104 USA); Ron Berman (The Wharton School, University of Pennsylvania, 3730 Walnut St, Philadelphia, PA 19104 USA) |
| Abstract: | Should a peer-to-peer platform set prices for the products on the platform, or should it let sellers set their own prices while providing price recommendations? Centralized prices allow a platform to use demand information it observes, while price recommendations allow for competition in which sellers set prices based on their private information. On sharing economy platforms, for example, we observe a myriad of such pricing regimes. We investigate the implications of each pricing regime for the profits of platforms, buyers and sellers. When a platform recommends prices, it effectively plays the role of a sender in a multi-receiver cheap-talk game. platforms are not always better off by centralizing pricing. When the variance of aggregate demand is large, price recommendations can be sustained in equilibrium and are often more profitable for the platform. Otherwise, a price recommendation is not credible. High (low) quality sellers have a stronger (weaker) preference for centralized pricing than the platform. Buyers, in contrast, receive lower surplus when the platform provides price recommendations, and prefer centralized pricing or competition without price recommendations. The results provide tools for platform designers and policy makers to assess the impact of different pricing regimes in markets with platforms. Although price recommendations might seem to encourage lower prices among sellers through increased competition, this is not always the case. |
| Keywords: | two-sided markets; peer-to-peer platforms; sharing economy; price recommendations; cheap talk |
| JEL: | D21 L13 L16 L22 M31 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:19-10&r=all |
| By: | Zhu Wang (Federal Reserve Bank of Richmond) |
| Abstract: | It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:833&r=all |
| By: | Lipatov, Vilen; Neven, Damien J; Siotis, Georges |
| Abstract: | This paper discusses, from economic and enforcement perspectives, unilateral conduct aimed at foreclosing the entry of generics. We assume, in line with empirical evidence, that before the entry of generics, competition takes place among originators mostly through non price instruments and in particular, promotion. The entry of generics for one molecule introduces head to head price competition for that molecule and changes competitive interactions among the originators that remain patent protected. First, we develop a model in which competition takes place through price and promotion and analyse the consequence of unilateral conduct preventing the entry of generics, thus prolonging the status quo. We find that that the extent to which this conduct reduces consumer welfare (if at all) depends on whether promotion enhances the utility of users and whether promotion also involves business stealing. In order to provide some guidance for enforcement, we characterise the competitive outcome that prevails before entry in terms of consumer welfare. We find that unlike what happens with price competition, common indicators of performance such as the number of firms, the level of concentration (for a given number of firms) and the intensity of rivalry might be negatively associated with consumer welfare. As a consequence, the foreclosure of entrants might lead to welfare losses even when the status quo involves intense non-price competition and low concentration. Finally, we consider how unilateral conduct towards generic entry can be dealt with in the current enforcement framework. In the Servier and Paroxetine cases, the foreclosure of generics has been framed as an abuse of a dominant position held by the originator before entry, in spite of evidence of non-price competition. We show that it would be preferable to frame the conduct as an abuse of the dominant position that the originator holds in the molecule market as a consequence of its patent. In such a framework, the dominant position is instrumental in making exclusion feasible. |
| Keywords: | Abuse of dominance; foreclosure; Non-price competition; Pharmaceutical industry |
| JEL: | I11 K21 L13 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14019&r=all |
| By: | Gremm, Cornelia; Bälz, David; Corbo, Chris; Mitusch, Kay |
| Abstract: | The intercity bus market in Germany was deregulated in 2013. As a consequence, there is now a dense network of intercity bus lines. For the first time, the German state-owned railway company Deutsche Bahn AG faces intermodal competition in public intercity passenger land transport on a large number of lines. This paper examines market entry factors for intercity bus companies and price reactions of the incumbent railway company from a theoretical perspective. Our model builds on Salop's circular city model to describe the horizontal product differentiation among the bus companies. At the same time, the railway company occupies the center of the circle and offers a higher product quality than the buses. It dominates the market, while a number of bus companies constitute an oligopolistic competitive fringe. In the subsequent comparative statics analysis, it is shown that the quality differential between the train and bus services have a considerable effect on market entry decisions by buses as well as on price reactions by the incumbent railway company. In particular, on routes where the quality advantage of railway services is rather small, buses are more likely to enter and the railway company will respond with a stronger price reduction than on other routes. |
| Keywords: | intermodal competition,intercity railway and bus services,Salop circle model with center, vertical and horizontal product differentiation,dominant firm with oligopolistic fringe |
| JEL: | R40 L11 L13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:135&r=all |
| By: | Sophia Chen (International Monetary Fund); Yu Shi (International Monetary Fund) |
| Abstract: | We develop a model of imperfect competition with variable markups to analyze the role of market competition in the transmission of targeted fiscal stimulus. We find that the more competitive the market is, the more sectoral output responds to fiscal stimulus in the targeted sector. The more competitive the market is, the less sectoral prices, sector-specific factor prices, and markup respond. We offer new empirical evidence consistent with these theoretical predictions in the context of the large fiscal stimulus in China in 2009-2010. Overall, our results support the view that market competition facilitates the transmission of fiscal stimulus. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:708&r=all |
| By: | Akcigit, Ufuk; Akgunduz, Yusuf Emre; Cilasun, Seyit Mumin; Ozcan Tok, Elif; Yilmaz, Fatih |
| Abstract: | In this paper, we investigate various trends on competition and business dynamism in the Turkish manufacturing sector. More specifically, using micro level administrative data sets of firm balance sheets, credit registry and social security records, we focus on moments such as firm entry, exit, profitability, worker reallocation, labor share, labor productivity and credit distributions, among several others. Our results indicate that business dynamism in the Turkish manufacturing sector was relatively stable and even improving until 2012 but has been declining since then. We find that market concentration and exit rates have started to rise, yet new business creation, labor share of output and economic activities of young firms have declined. Using a model with endogenous market competition, we show that a adverse shock to cost of R&D investment can explain these empirical trends. We identify increases in financing costs after 2012 of followers as a potential mechanism for our findings in Turkey. We next perform a policy analysis with our model which suggests that providing support (e.g., R&D subsidy) to immediate followers can undo the adverse effects of the negative shock to financing costs and therefore foster competition and faster growth. |
| Keywords: | business dynamism; Competition; Market concentration; Turkish economy |
| JEL: | E22 E25 L12 O31 O33 O34 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13999&r=all |
| By: | Budlender Joshua |
| Abstract: | The South African economy is generally understood to be characterised by high levels‚ of product market concentration and high firm markups. This paper reviews the existing literature‚ and discusses what can be learnt from new administrative firm-level panel data. I present new‚ evidence on South African markups, industrial concentration, and the firm-size distribution, for‚ sectors across the South African economy.I find that conclusions on whether markups are ¢â‚¬Ëœhigh¢â‚¬â„¢‚ or ¢â‚¬Ëœlow¢â‚¬â„¢ are heavily dependent on the method used, and I show that this is consistent with the‚ prior literature. There is however preliminary evidence that markups have generally declined over‚ the 2010¢â‚¬â€œ14 period. I argue that it is difficult to make strong conclusions about industrial‚ concentration using cross-industry study, and that high and growing concentration across the‚ South African economy is yet to be conclusively shown. I also investigate how firm-level markups‚ are related to industry-level concentration and firm-level market share. While some patterns‚ emerge, I argue that their economic meaning is unclear. |
| Keywords: | firm-size distribution,Market design,markups,Panel data analysis |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2019-58&r=all |
| By: | SHOJI Keishi; IBUKA Yoko |
| Abstract: | The consequences of hospital competition is a long-standing issue but empirical analyses show mixed results. We empirically analyze the relationship between competition and three outcome measures, the length of hospital stay, health improvement, and mortality, in the hospital market using Japanese data. Adjusting for patient and hospital characteristics, we find that some of the outcomes tend to improve in more competitive areas, in both urban and rural settings. However, the analysis shows a non-linear relationship between competition and the outcomes, suggesting that competitiveness beyond a threshold may deteriorate the outcomes. These results suggest that while a certain degree of competition could improve these outcomes, excessive competition may not be desirable. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:19047&r=all |
| By: | Atayev, Atabek; Janssen, Maarten |
| Abstract: | Consumers can acquire information through their own search efforts or through their social network. Information diffusion via word-of-mouth communication leads to some consumers free-riding on their "friends" and less information acquisition via active search. Free-riding also has an important positive effect, however, in that consumers that do not actively search themselves are more likely to be able to compare prices before purchase, imposing competitive pressure on firms. We show how market prices depend on the characteristics of the network and on search cost. For example, if the search cost becomes small, price dispersion disappears, while the price level converges to the monopoly level, implying that expected prices are decreasing for small enough search cost. More connected societies have lower market prices, while price dispersion remains even in fully connected societies. |
| Keywords: | consumer search; Social Networks; Word-of-Mouth Communication |
| JEL: | D43 D83 D85 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14036&r=all |
| By: | Matej Bajgar; Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo; Jonathan Timmis |
| Abstract: | This report presents new evidence on industry concentration trends in Europe and in North America. It uses two novel data sources: representative firm-level concentration measures from the OECD MultiProd project, and business-group-level concentration measures using matched Orbis-Worldscope-Zephyr data. Based on the MultiProd data, it finds that between 2001 and 2012 the average industry across 10 European economies saw a 2-3-percentage-point increase in the share of the 10% largest companies in industry sales. Using the Orbis-Worldscope-Zephyr data, it documents a clear increase in industry concentration in Europe as well as in North America between 2000 and 2014 of the order of 4-8 percentage points for the average industry. Over the period, about 3 out of 4 (2-digit) industries in each region saw their concentration increase. The increase is observed for both manufacturing and non-financial services and is not driven by digital-intensive sectors. |
| Keywords: | Industry concentration, business dynamics, measurement |
| JEL: | D4 L11 L25 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1654&r=all |
| By: | Bell, Brian; Bukowski, Pawel; Machin, Stephen |
| Abstract: | The long-run evolution of rent sharing is empirically studied. Based upon a comprehensive and harmonized panel of the top 300 publicly quoted British companies over thirty five years, the paper reports evidence of a significant fall over time in the extent to which firms share rents with workers. It confirms that companies do share their profits with employees, but at much smaller scale today than they did during the 1980s and 1990s. This is a robust finding, corroborated with industry-level analysis for the US and EU. The decline in rent sharing is coincident with the rise of product market power that has occurred as worker bargaining power has dropped. Although firms with more market power previously shared more of their profits, they experienced a stronger fall in rent sharing after 2000. |
| Keywords: | rent sharing; inclusive growth |
| JEL: | J30 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101868&r=all |
| By: | Yingni Guo; Eran Shmaya |
| Abstract: | We study the regulation of a monopolistic firm using a robust-design approach. We solve for the policy that minimizes the regulator's worst-case regret, where the regret is the difference between his complete-information payoff minus his realized payoff. When the regulator's payoff is consumers' surplus, it is optimal to impose a price cap. The optimal cap balances the benefit from more surplus for consumers and the loss from underproduction. When his payoff is consumers' surplus plus the firm's profit, he offers a piece-rate subsidy in order to mitigate underproduction, but caps the total subsidy so as not to incentivize severe overproduction. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.04260&r=all |
| By: | Ryan Hawthrone; Lukasz Grzybowksi |
| Abstract: | We test for the distributional effects of regulation and entry in the mobile telecommunications sector in a highly unequal country, South Africa. Using six waves of a consumer survey of over 134,000 individuals between 2009-2014, we estimate a discrete-choice model allowing for individual-specific price-responsiveness and preferences for network operators. Next, we use a demand and supply equilibrium framework to simulate prices and the distribution of welfare without entry and mobile termination rate regulation. We find that regulation benefits consumers significantly more than entry does, and that high-income consumers and city-dwellers benefit more in terms of increased consumer surplus. |
| Keywords: | Mobile telecommunications, Competition; Entry, Discrete choice, inequality |
| JEL: | L13 L40 L50 L96 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:791&r=all |
| By: | ARA Tomohiro; ZHANG Hongyong |
| Abstract: | We study the impact of tariffs on the margins of intermediate-input trade and examine their impact on optimal tariffs for intermediate inputs. Using China Customs disaggregate product-level data from 2000 to 2008, we find that (i) China's WTO accession and the resulting input import tariff reductions increase China's input imports through both the extensive and intensive margins; (ii) after China's WTO accession, China's input import tariffs are higher, the more concentrated and hence the less competitive China's input markets (at the product level). We confirm that these findings are robust in alternative specifications. The estimation results are consistent with the theoretical prediction of the endogenous market structure by Ara and Ghosh (2017). |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19066&r=all |
| By: | Amore, Mario Daniele; Marzano, Riccardo |
| Abstract: | We study how family ownership shapes the firms' likelihood of being involved in antitrust indictments. Using data from Italy, we show that family firms are significantly less likely than other firms to commit antitrust violations. To achieve identification, we exploit a law change that made it easier to transfer family control. Studying the mechanisms at play, we find that family firms are especially less likely to commit antitrust violations when they feature a more prominent size relative to the city where they are located, which magnifies reputational concerns. Next, we show that family firms involved in antitrust violations appoint more family members in top executive positions in the aftermath of the indictment. Moreover, these firms invest less and curb equity financing as compared to nonfamily firms. Collectively, our findings suggest that family control wards off reputational damages but, at the same time, it weakens the ability to expand in order to keep up with fiercer competition following the dismantlement of the anticompetitive practice. |
| Keywords: | Antitrust violation; Financing; investment; ownership |
| JEL: | D22 G34 G38 K21 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14018&r=all |
| By: | Rupayan Pal (Indira Gandhi Institute of Development Research); Ruichao Song (Southwestern University of Finance and Economics) |
| Abstract: | This article analyses alternative subsidy schemes and long-run entry bias in a new industry that creates positive environmental externalities. It demonstrates that per unit subsidy scheme, despite attracting fewer firms, results in higher industry output and economic surplus in the equilibrium compared to the expenditure equivalent lump-sum subsidy scheme. However, the later leads to higher total surplus, unless spill-over externalities is sufficiently small. Further, free entry equilibrium number of firms may be excessive or insufficient. The first best equilibrium outcome can be implemented through a unique combination of per unit subsidy and lump sum subsidy/tax, which involves positive government expenditure. |
| Keywords: | Positive externalities, Environmental benefit, Free entry, Cournot Oligopoly, Expenditure equivalent subsidy schemes, Social Optimum |
| JEL: | D43 L52 H23 Q48 Q58 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2019-028&r=all |
| By: | MORIKAWA Masayuki |
| Abstract: | The argument that Japanese firms which operate under a price competition paradigm should change their strategy from price competition to quality competition to improve their productivity is prevalent, but empirical evidence to support this argument has rarely been presented. This study, using data from an original firm survey, presents findings on firms' strategy on price/quality competition and on the relationship between this competition strategy and firm characteristics. The results indicate, first, that the majority of firms prefer quality competition to price competition and this tendency is stronger among firms operating in the service industries. Second, firms which employ a quality competition strategy tend to have highly educated employees, to actively invest in intangible assets such as R&D, and demonstrate a higher tendency to engage in innovation. Third, the profitability of firms that employ a quality competition strategy is higher than firms with a price competition strategy, but the difference in productivity between the strategies is unclear. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19075&r=all |
| By: | Sarit Markovich (Kellogg School of Management, Northwestern University, Evanston, IL, USA); Yaron Yehezkel (Coller School of Management, Tel Aviv University, Ramat Aviv, Israel) |
| Abstract: | We consider platform competition in the presence of small users and a user-group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users' coordination problem –i.e., joining a low-quality platform because they believe that other users would do the same. We find that when the group is sufficiently large to facilitate coordination on the high-quality platform, the group may choose to join the low-quality one. When the group joins the more efficient platform it does not necessarily increase consumer surplus. Specifically, a non-group user benefits from a group with an intermediate size, and prefers a small group over a large group. The utility of a group user is also non-monotonic in the size of the group. |
| Keywords: | network externalities; coordination |
| JEL: | L1 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1904&r=all |
| By: | Crystal, Michael; Gandal, Neil; Shilony, Royee; Shur-Ofry, Michal |
| Abstract: | Scientific understanding of innovation processes and of the patent system increasingly relies on big data analyses of patent citations. Much of that research focuses on highly cited patents. This study, conversely, offers the first systematic exploration of uncited patents-patents that receive no citations. Analyzing data on all US patents issued between 1976 and 2008, we focus on the ratio of uncited patents out of all patents granted each year. We track the changes in the percentage of uncited patents during that period, and across technological fields, controlling for patents' age. We also investigate traits of uncited patents by examining the association between lack of citations and various factors including the number of inventors, number of technological subclasses, number of backward citations, and number of claims in the patent. We find a robust pattern whereby the percentage of uncited patents declined between 1976 and the mid 1990s, but has been significantly increasing since then. These findings are consistent across technological fields and hold after controlling for patent characteristics. We discuss these and additional findings, and propose possible explanations. We suggest that the trend of increase in uncited patents raises, and reinforces, concerns regarding patent quality and "patent explosion". More broadly, our focus on "negative information" embedded in patent data opens up a new avenue for further research that can deepen our understanding of the patent system. |
| Keywords: | Big Data; Innovation; Negative Knowledge; networks; Patent Citations; Uncited Patents |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13982&r=all |
| By: | Fumagalli, Chiara; Motta, Massimo |
| Abstract: | We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when the incumbent's dominant position in the primary market cannot be protected. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home. |
| Keywords: | Inefficient foreclosure; network externalities; Scale Economies; Tying |
| JEL: | K21 L41 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14031&r=all |
| By: | Aleksander Berentsen (Department of Business and Economics - University of Basel - Unibas - University of Basel); Mariana Rojas Breu (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Christopher Waller (Deakin University - Deakin University [Burwood]) |
| Abstract: | We construct a search model where sellers post prices and produce goods of unknown quality. A match between a buyer and a seller reveals the quality of the seller.We look at the pricing decisions of the sellers in this environment. We then introduce a rating system whereby buyers reveal the seller's type by giving them a ‘star' ifthey are a high quality seller. We show that new sellers charge a low price to attractbuyers and if they receive a star they post a high price. Furthermore, high qualitysellers sell with a higher probability than new sellers. We show that welfare is higherwith a ratings system. Using data on Airbnb rentals to compare the pricing decisionsof Superhosts (elite rentals) to non-Superhosts we show that Superhosts: 1) chargehigher prices, 2) have a higher occupancy rate and 3) higher revenue than non-Superhosts. |
| Keywords: | superhosts,Ratings,Price Posting,Airbnb |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02302566&r=all |
| By: | Luis Abreu (Toulouse School of Economics, 21 Allée de Brienne, 31015 Toulouse Cedex 6, France); Doh-Shin Jeon (Toulouse School of Economics, 21 Allée de Brienne, 31015 Toulouse Cedex 6, France) |
| Abstract: | We study how media bias is affected by the structure of social networks on social media. We consider an ad-financed media firm which chooses the ideological location of its news and targets consumers who can share the news with their followers on an online social media. After studying how a targeted consumer’s incentive to share the news is shaped by the network structure of her followers, we study the firm’s strategy to maximize the breadth of news sharing and find that when the mean (respectively, the variance) of followers’ ideological locations is a convex (respectively, concave) function of a direct consumer’s location, the media firm is likely to produce polarized news. The analysis of the case in which consumers are uniformly distributed reveals that news polarization is more likely to occur as the degree of homophily increases. We also find that media competition makes polarization more likely. |
| Keywords: | media bias; online social networks; homophily; sharing, polarization |
| JEL: | D21 D85 L82 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1905&r=all |
| By: | Gretschko, Vitali; Pollrich, Martin |
| Abstract: | We analyze the problem of a buyer who purchases a long-term project from one of several suppliers. A changing state of the world influences the costs of the suppliers. Complete contracts conditioning on all future realizations of the state are infeasible. We show that contractual incompleteness comes without a cost. The buyer achieves the same surplus with complete and incomplete contracts. The key insight is that the allocation prescribed by optimal complete contracts is sequentially optimal with incomplete contracts if the buyer does not receive too much information ex-interim. We show that the English auction restricts the information optimally. |
| Keywords: | incomplete contracts,repeated relationships,procurement,commitment |
| JEL: | D44 D82 H57 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:19040&r=all |
| By: | Flora BELLONE; Cilem Selin HAZIR; MATSUURA Toshiyuki |
| Abstract: | This study examines how Japanese firms change their product portfolios in response to surges of imports from China. Using the comprehensive Japanese plant-product level panel data set, we examine the impact of import competition on their product churning behavior. We found that the import competition pressures do affect the product churning for multi-product plants. However, the negative effects of import competition are mitigated by increased export opportunities. This effect is more pronounced especially in the years before 2008. However, their impact on plant-level reallocation is somewhat limited. Negative effects on plant-level sales and exit behavior are observed only for single-product plants. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19074&r=all |
| By: | Kazan, Erol; Tan, Chee-Wee; Lim, Eric T.K; Sørensen, Carsten; Damsgaard, Jan |
| Abstract: | Digital platforms confer competitive advantage through superior architectural configurations. There is however still a dearth of research that sheds light on the competitive attributes which define platform competition from an architectural standpoint. To disentangle platform competition, we opted for the mobile payment market in the United Kingdom (UK) as our empirical setting. By conceptualizing digital platforms as layered modular architectures and embracing the theoretical lens of strategic groups, this study supplements prior research by deriving a taxonomy of platform profiles that is grounded on the strategic dimensions of value creation and value delivery architectures. We discover that mobile payment platforms could be delineated based on whether they are: (1) integrative or integratable on their value creation architecture; and (2) have direct, indirect, or open access on their value delivery architecture. The preceding attributes of value creation architecture and value delivery architecture aided us in identifying six profiles associated with mobile payment platforms, which in turn led us to advance three competitive strategies that could be pursued by digital platforms in network economies. |
| Keywords: | Competition; digital infrastructures; digital platforms; financial technologies; mobile payments; network economies; strategic groups |
| JEL: | J50 |
| Date: | 2018–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86345&r=all |
| By: | Kretschmer, Tobias; Peukert, Christian |
| Abstract: | We study the heterogeneous effects of online video platforms on the sales volume and sales distribution of recorded music. Identification comes from two natural experiments in Germany. In 2009, virtually all music videos were blocked from YouTube due to a legal dispute. In 2013, the dedicated platform VEVO entered the market, making videos of a large number of artists available overnight. Our estimates suggest that restricting (enabling) access to online videos decreases (increases) recorded music sales on average by about 5-10%. We show that the effect operates independently of the nature of video content, suggesting that user-generated content is as effective as official content. Moreover, we highlight heterogeneity in this effect: Online music video disproportionally benefits sales of new artists and sales of mainstream music. |
| Keywords: | Digital Distribution Platforms; Natural Experiment; User-generated content |
| JEL: | L15 L82 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14038&r=all |