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on Industrial Competition |
| By: | Axel Gautier; Joe Lamesch; |
| Abstract: | Over the period 2015-2017, the five giant technologically leading firms, Google, Amazon, Facebook, Amazon and Microsoft (GAFAM) acquired 175 companies, from small start-ups to billion dollar deals. By investigating this intense M&A, this paper ambitions a better understanding of the Big Five’s strategies. To do so, we identify 6 different user groups gravitating around these multi-sided companies along with each company’s most important market segments. We then track their mergers and acquisitions and match them with the segments. This exercise shows that these five firms use M&A activity mostly to strengthen their core market segments but rarely to expand their activities into new ones. Furthermore, most of the acquired products are shut down post acquisition, which suggests that GAFAM mainly acquire firm’s assets (functionality, technology, talent or IP) to integrate them in their ecosystem rather than the products and users themselves. For these tech giants, therefore, acquisition appears to be a substitute for in-house R&D. Finally, from our check for possible “killer acquisitions”, it appears that just a single one in our sample could potentially be qualified as such. |
| Keywords: | mergers, GAFAM, platform, digital markets, competition policy, killer acquisition |
| JEL: | D43 K21 L40 L86 G34 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8056&r=all |
| By: | Boehm, Johannes; Sonntag, Jan |
| Abstract: | This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. This relationship holds for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using exogenous downward pressure on the supplier's stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumoured or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place. |
| Keywords: | mergers and acquisitions; market foreclosure; vertical integration; production networks |
| JEL: | L14 L42 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103401&r=all |
| By: | Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University) |
| Abstract: | Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al. 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises. |
| Keywords: | Excessive Entry, Cournot-Oligopoly, Horizontal FDI, Political Support Function |
| JEL: | D43 D72 F21 L13 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:202003&r=all |
| By: | Beria, Paolo; Tolentino, Samuel; Filippini, Gabriele |
| Abstract: | The literature on open-access rail competition has been quite unanimous in pointing out the positive effects of the entry of the (few) newcomers in their respective markets. Generally speaking, quality has increased and frequency too. The effect on prices has also generally been what everybody expected: the newcomer is pricing less than the incumbent and overall the prices on the liberalised market are lower than the counterfactual ones. Without denying all the positive effects that rail competition in Italy has brought since 2012, thanks to the large-scale direct competition of NTV/Italo vs. the incumbent Trenitalia, in this paper we will provide the first evidence of something new, happened in the last 12 months. Since 2018, in fact, while frequencies and passengers continue to grow, for the first time also the average prices started increasing, even in those routes just opened to competition. The scope of this work is limited to analyse everyday train prices in a period of three years on numerous Italian routes, showing how prices changed over time and in particular according to the presence of competition and route characteristics. Findings are interesting: prices do not fall in all routes where competition starts, or at least just for a short period. In general, 2019 saw a consistent realignment of prices to a higher level than 2017-2018, for both competitors. One obvious explanation could be that the competitors are just apparently competing, or that production costs have raised (or both). This would be by far the worst outcome of a liberalisation process: costs up and cartel prices up with the costs. But the same phenomenon could be explained differently if there is no overcapacity: competition is working on parameters different than average prices (quality, frequency, product differentiation, price discrimination). We are still not able to demonstrate the existence of a cartel, so this work is just intended to show what has happened, and not why. |
| Keywords: | rail prices; competition; intermodality; Italy; rail; Italo; NTV; Trenitalia; high-speed |
| JEL: | D43 L92 R40 |
| Date: | 2020–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98841&r=all |
| By: | Charles Angelucci; Julia Cagé; Michael Sinkinson |
| Abstract: | News media operate in two-sided markets, offering bundles of content to readers as well as selling readers' attention to advertisers. Technological innovations in content delivery, such as the advent of broadcast television or of the Internet, affect both sides of the market, threatening the basic economic model of print news operations. We examine how the entry of television affected local newspapers as well as consumer media diets in the United States. We develop a model of print media and show that entry of national television news could adversely affect the provision of local news. We construct a novel dataset of U.S. newspapers' economic performance and content choices from 1944 to 1964. Our empirical strategy exploits quasi-random variation in the timing of the entry of television in different markets. We show that the entry of television was a negative shock for newspapers, particularly evening newspapers, in both the readership and advertising markets. Further, we find a drop in the total quantity of news printed, in particular original reporting, raising concerns about the provision of local news. |
| JEL: | D4 L11 L15 M37 N72 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26782&r=all |
| By: | Genakos, Christos; Pagliero, Mario |
| Abstract: | We measure how pass-through varies with competition in isolated oligopolistic markets with captive consumers. Using daily pricing data from gas stations, we study how unanticipated and exogenous changes in excise duties (which vary across different petroleum products) are passed through to consumers in markets with different numbers of retailers. We find that pass-through increases from 0.44 in monopoly markets to 1 in markets with four or more competitors and remains constant thereafter. Moreover, the speed of price adjustment is about 60% higher in more competitive markets. Finally, we show that geographic market definitions based on arbitrary measures of distance across sellers, often used by researchers and policy makers, result in significant overestimation of the pass-through when the number of competitors is small. |
| Keywords: | pass-through; tax incidence; gasoline; market structure; competition |
| JEL: | H22 L10 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103397&r=all |
| By: | Lee, Sang-Ho; Muminov, Timur |
| Abstract: | This study investigates an endogenous R&D timing game between duopoly firms which undertake cost-reducing R&D investments and then play Cournot output competition. We examine equilibrium outcomes in private and mixed markets and find that spillovers rate critically affects contrasting results. We show that a simultaneous-move appears in a private duopoly only if the spillovers rate is low while a sequential-move appears in a mixed duopoly irrespective of spillovers. We also show that public leadership is the only equilibrium if the spillovers rate is intermediate and its resulting welfare is the highest. Finally, we show that the implementation of privatization policy transforms a public leader to a private competitor, but this can decrease the social welfare. |
| Keywords: | private duopoly; mixed duopoly; R&D spillovers; endogenous R&D timing game; |
| JEL: | L13 L32 L33 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98832&r=all |
| By: | Rodriguez Castelan,Carlos; Araar,Abdelkrim; Malasquez Carbonel,Eduardo Alonso; Olivieri,Sergio Daniel; Vishwanath,Tara |
| Abstract: | Understanding the economic and social effects of the recent global trends of rising market concentration and market power has become a policy priority, particularly in developing countries where markets are often more concentrated. In this context, since the poor are typically the most affected by lack of competition, new analytical tools to assess the distributional effects of variations in market concentration in a rapid and cost-efficient manner are required. To fill this knowledge gap, this paper introduces a simple simulation method, the Welfare and Competition tool (WELCOM), to estimate with minimum data requirements the direct distributional effects of market concentration through the price channel. Using this simple yet novel tool, this paper also illustrates the simulated distributional effects of reducing concentration in two markets in Mexico that are known for their high level of concentration: mobile telecommunications and corn products. The results show that increasing competition from four to 12 firms in the mobile telecommunications industry and reducing the market share of the oligopoly in corn products from 31.2 percent to 7.8 percent would achieve a combined reduction of 0.8 percentage points in the poverty headcount as well as a decline of 0.32 points in the Gini coefficient. |
| Date: | 2019–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:8838&r=all |
| By: | Mariola Ndrio; Khaled Alshehri; Subhonmesh Bose |
| Abstract: | We consider a market in which both suppliers and consumers compete for a product via scalar-parameterized supply offers and demand bids. Scalar-parameterized offers/bids are appealing due to their modeling simplicity and desirable mathematical properties with the most prominent being bounded efficiency loss and price markup under strategic interactions. Our model incorporates production capacity constraints and minimum inelastic demand requirements. Under perfect competition, the market mechanism yields allocations that maximize social welfare. When market participants are price-anticipating, we show that there exists a unique Nash equilibrium, and provide an efficient way to compute the resulting market allocation. Moreover, we explicitly characterize the bounds on the welfare loss and prices observed at the Nash equilibrium. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2003.01206&r=all |
| By: | Nada Belhadj (ISG - Institut Supérieur de Gestion de Tunis [Tunis] - Université de Tunis [Tunis]); Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Joana Resende (Economics Department, University of Porto) |
| Abstract: | This paper shows that the platforms' private information on demand may explain the empirical observation that platforms like Amazon resell high-demand products, while acting as marketplace for low-demand goods. More precisely, the paper examines the strategic interaction between a seller and a better informed platform within a signalling game. We consider that the platform may choose between two distinct business models: act as a reseller or work as a pure marketplace between the buyers and the seller. The marketplace mode, which allows to internalize the spillover between the platform's sales and the seller's direct sales is always preferred for a low-value good. The reselling mode, which allows the platform to take advantage of its private information, may be selected in the case of high-value goods provided that (i) the externalities between direct sales and platform sales are not too strong and (ii) the difference between consumers' willingness to pay for the high and the low-value goods is large enough. Under these conditions, the game displays a Least-Cost Separating Equilibrium in which the platform works as a marketplace for low-demand goods, while it acts as a reseller in the case of high-demand goods. |
| Keywords: | Marketplace,Reselling,Asymmetric information,Platform,Demand uncertainty |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02469425&r=all |
| By: | Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho |
| Abstract: | This study investigates an interplay between strategic CSR (corporate social responsibility) by a multiproduct corporation and merger decisions by rival firms each having single plant. We examine and compare two different timings of choosing CSR, i.e., ”merge-then-CSR” and ”CSR-then-merge” games. In the former case, we show that the level of CSR increases in products substitutability, but its level under merger is lower than that without merger. In the latter case where a multiproduct corporation can commit to a higher level of CSR before rival firms’ mergers, however, the level of CSR decreases in products substitutability and it might increase not only consumer surplus but social welfare. |
| Keywords: | multiproduct corporation; strategic CSR; timing of commitment; products substitutability; merger decision; |
| JEL: | L2 L4 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98830&r=all |
| By: | Bajgar, Matej; Berlingieri, Giuseppe; Calligaris, Sara; Criscuolo, Chiara; Timmis, Jonathan |
| 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 OrbisWorldscope-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: | D40 L11 L25 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103427&r=all |
| By: | Ayyagari,Meghana; Demirguc-Kunt,Asli; Maksimovic,Vojislav |
| Abstract: | There is a divergence in the returns of top-performing firms and the rest of the economy, especially in industries that rely on a skilled labor force, raising concerns about their market power. This paper shows that the divergence is explained by the mismeasurement of intangible capital. Compared with other firms, star firms produce more per dollar of invested capital, have higher growth, innovation, and productivity and are not differentially affected by exogenous competitive shocks. Their pricing power supports their high intangible capital investment. Some exceptional firms may pose concerns due to their potential to foreclose competition in the future. |
| Date: | 2019–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:8832&r=all |
| By: | Frederic Marty; Thierry Warin |
| Abstract: | Digital ecosystems development is characterized by a paradox in terms of innovation. At no time in history has the pace of innovation been so fast and never before have third-party firms been able to benefit so much for their own innovations from their integration into a keystone player’s ecosystem. However, such a keystone player may be encouraged to implement non-cooperative strategies to capture the innovations developed by its own complementors. Such strategies may be detrimental to trading partners, innovation and consumers. This article aims to analyse these two possible effects of the development of digital ecosystems on innovation and to infer recommendations in terms of competition policy to counteract the detrimental effects that may result from potential unbalanced co-opetitive situations. |
| Keywords: | Innovation,Competition,Digital Ecosystems,Keystone Player,Co-Opetition, |
| JEL: | L12 L13 L25 L41 |
| Date: | 2020–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2020s-10&r=all |
| By: | Edmond Baranes; Cuong Hung Vuong |
| Abstract: | This paper studies the investment decision by a monopolistic internet service provider (ISP) in different regulatory environments. We consider that the ISP could technically provide separate quality upgrades to two vertically differentiated content providers (CPs); therefore, it could potentially extract the CPs’ marginal profits through an offer to provide the quality upgrades. Our results show that if unregulated, the ISP optimally provides asymmetric quality upgrades, in favor of the high-quality CP. This subsequently increases the degree of content differentiation, softening competition between the CPs. Imposing a nondiscrimination regulation that forces the ISP to provide an equal quality upgrade to both CPs, however, can reduce the ISP.s investment incentive and social welfare. Furthermore, the investment level is higher if the regulated ISP is allowed to charge the CPs. Finally, a socially optimal investment can be opposite to the ISP’s choice when the contents are enough substitutes. |
| Keywords: | complementary, differentiation, investment, internet, regulation |
| JEL: | L13 L51 L96 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8074&r=all |
| By: | Rémy Guichardaz (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The debate over intellectual property in nineteenth-century France was structured as follows: liberal economists advocated a system of perpetual intellectual property rights, while socialist thinkers called for their total abolition. Between these two extremes, other economists supported a temporary form of intellectual property: in particular, Pierre-Joseph Proudhon and Léon Walras both converged towards this third solution. This article shows that they in fact provide two different analyses of intellectual property rights, which partly overlap with positions in current debates in innovation studies. |
| Keywords: | copyright,Intellectual property,Walras (Léon),Proudhon (Pierre-Joseph) |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02437832&r=all |
| By: | Doireann Fitzgerald; Stefanie Haller; Yaniv Yedid-Levi |
| Abstract: | We show that in successful episodes of export market entry, there are statistically and economically significant post-entry dynamics of quantities, but no post-entry dynamics of markups. This suggests that shifts in demand play an important role in successful entry, but that firms do not use dynamic manipulation of markups as an instrument to shift demand. We structurally estimate two competing models of customer base accumulation to match these moments. In the first model, firms use marketing and advertising to acquire new customers and thereby shift demand and increase sales. In the second, they use temporarily low markups to do so. The marketing and advertising model fits the quantity and markup moments well, and implies that successful entry is associated with high selling expenses. The second model cannot simultaneously fit quantity and markup moments, even with a counterfactually high price elasticity of demand and trade elasticity. We conclude that successful market entry is more likely to be associated with high selling expenses than low markups. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8077&r=all |
| By: | Dobbelaere, Sabien (Vrije Universiteit Amsterdam); Wiersma, Quint (Vrije Universiteit Amsterdam) |
| Abstract: | This paper examines the impact of trade liberalization on firms' product and labor market power. We estimate the prevalence and intensity of firm-level price-cost markups and either wage markups or wage markdowns. We take the dependence between these model-consistent measures of product and labor market power explicitly into account. To identify the effect of trade shocks on product and labor market power, we exploit China's reductions in input and output tariffs upon its accession to the World Trade Organization. We find that trade liberalization has not switched firms away from exercising product and labor market power. Reducing tariffs on intermediate inputs has increased a firm's price-cost markup but decreased the degree of wage-setting power that it possesses, conditional on exercising product/labor market power. Finally, we find heterogeneous effects of trade liberalization on the intensity of firms' product and labor market power, giving insights into the true consequences of trade shocks. |
| Keywords: | price-cost markups, wage markups, wage markdowns, trade liberalization, tariffs |
| JEL: | F14 F16 L11 P31 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12951&r=all |
| By: | Juan M. Lozada; Lina M. Cortés; Daniel Velasquez Gaviria |
| JEL: | C32 G14 G21 G34 |
| Date: | 2020–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:017936&r=all |
| By: | Aghion, Philippe; Bergeaud, Antonin; Lequien, Matthieu; Melitz, Marc |
| Abstract: | We analyze how demand conditions faced by a firm impacts its innovation decisions. To disentangle the direction of causality between innovation and demand conditions, we construct a firm-level export demand shock which responds to aggregate conditions in a firm’s export destinations but is exogenous to firm-level decisions. Using exhaustive data covering the French manufacturing sector, we show that French firms respond to exogenous growth shocks in their export destinations by patenting more; and that this response is entirely driven by the subset of initially more productive firms. The patent response arises 3 to 5 years after a demand shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms, without any notable differences between high and low productivity firms. We show that this finding of a skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity. The market size increase drives all firms to innovate more by increasing the innovation rents; yet by inducing more entry and thus more competition, it also discourages innovation by low productivity firms. |
| Keywords: | innovation; export; demand shocks; patents |
| JEL: | D21 F13 F14 F41 O30 O47 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103434&r=all |
| By: | Mérel, Pierre; Ortiz-Bobea, Ariel; Paroissien, Emmanuel |
| Abstract: | This paper provides empirical evidence of large welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses represent up to 13% of total market value, suggesting an important role for credible certification schemes. |
| Keywords: | Crop Production/Industries, Food Consumption/Nutrition/Food Safety |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ags:inrasl:302485&r=all |
| By: | William C. Horrace (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Hyunseok Jung (Department of Economics, University of Arkansas); Shane Sanders (Department of Sports Management, Syracuse University) |
| Abstract: | We consider a heterogeneous social interaction model where agents interact with peers within their own network but also interact with agents across other (non-peer) networks. To address potential endogeneity in the networks, we assume that each network has a central planner who makes strategic network decisions based on observable and unobservable characteristics of the peers in her charge. The model forms a simultaneous equation system that can be estimated by Quasi-Maximum Likelihood. We apply a restricted version of our model to data on National Basketball Association games, where agents are players, networks are individual teams organized by coaches, and competition is head-to-head. That is, at any time a player only interacts with two networks: their team and the opposing team. We find significant positive within-team peer-effects and both negative and positive opposing-team competitor-effects in NBA games. The former are interpretable as “team chemistries" which enhance the individual performances of players on the same team. The latter are interpretable as “team rivalries," which can either enhance or diminish the individual performance of opposing players. |
| Keywords: | Spatial Analysis, Peer Effects, Endogeneity, Machine Learning |
| JEL: | C13 C31 D24 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:226&r=all |