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on Industrial Competition |
| By: | Armstrong, Mark; Zhou, Jidong |
| Abstract: | This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which allow pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal signal structure amplifies the underlying product differentiation, thereby relaxing competition, while ensuring that consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal structure dampens differentiation, which intensifies competition, but induces some consumers with weak preferences between products to buy their less-preferred product. The analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly. |
| Keywords: | Bertrand Competition; information design; Online platforms; product differentiation |
| JEL: | D43 D47 D83 L13 L15 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14162&r=all |
| By: | Martin Obradovits; Philipp Plaickner |
| Abstract: | In many (online) markets, consumers can readily observe prices, but need to examine individual products at positive cost in order to assess how well they match their needs. We propose a tractable model of price-directed sequential search in a market where firms compete in prices. Each product meets consumers' basic needs, however they are only fully satisfied with a certain probability. In our setup, four types of pricing equilibria emerge, some of which entail inefficiencies as not all consumers are (always) served. We then lend our model to analyze collusion. We find that for any number of firms, there exists a parameter region in which the payoff-dominant symmetric collusive equilibrium gives rise to a higher expected total social welfare than the repeated one-shot Nash equilibrium. In other regions, welfare is identical under collusion and merely consumer rents are transferred, or both welfare and consumer rents are reduced. An all-inclusive cartel maximizing industry profit increases welfare for an even larger set of parameters, but may also be detrimental to it. |
| Keywords: | Consumer Search, Directed Search, Price Competition, Mixed-Strategy Pricing, Collusion, Cartels |
| JEL: | D43 D83 L13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2020-24&r=all |
| By: | Bin Grace Li; James McAndrews; Zhu Wang |
| 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 twosided 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. |
| Keywords: | Income distribution;Consumer credit;Income inequality;Consumer goods;Payment systems;R&D,Technology Adoption,Two-Sided Market,consumer welfare,payment card,consumer income,electronic payment,large merchant |
| Date: | 2019–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/057&r=all |
| By: | Roman Inderst; Martin Obradovits |
| Abstract: | How should firms optimally choose prices and promotional strategies and how should they position their products when consumers are "relative thinkers"? We provide answers in a model that extends the seminal contributions of Varian (1980) and Narasimhan (1988) and derive both managerial implications and implications for empirical researchers with regards to promotional frequency and depth as well as observed product heterogeneity in the market. |
| Keywords: | Relative Thinking, Price Competition, Promotions, Product Choice, Product Heterogeneity, Managerial Implications |
| JEL: | D21 D43 D91 L11 L13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2020-25&r=all |
| By: | David Bounie; Antoine Dubus; Patrick Waelbroeck |
| Abstract: | We investigate the strategies of a data intermediary selling consumer information to firms for price discrimination purpose. We analyze how the mechanism through which the data intermediary sells information influences how much consumer information she will collect and sell to firms, and how it impacts consumer surplus. We consider three selling mechanisms tailored to sell consumer information: take it or leave it, sequential bargaining, and auctions. We show that the more information the intermediary collects, the lower consumer surplus. Consumer information collection is minimized, and consumer surplus maximized under the take it or leave it mechanism, which is the least profitable mechanism for the intermediary. We discuss two regulatory tools – a data minimization principle and a price cap – that can be used by data protection agencies and competition authorities to limit consumer information collection, increase consumer surplus, and ensure a fair access to information to firms. |
| Keywords: | market for information, competition, price discrimination, data collection, privacy, selling mechanisms |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8307&r=all |
| By: | Federico J Diez; Jiayue Fan; Carolina Villegas-Sánchez |
| Abstract: | Using a new firm-level dataset on private and listed firms from 20 countries, we document five stylized facts on market power in global markets. First, competition has declined around the world, measured as a moderate increase in average firm markups during 2000- 2015. Second, the markup increase is driven by already high-markup firms (top decile of the markup distribution) that charge increasing markups. Third, markups increased mostly among advanced economies but not in emerging markets. Fourth, there is a non-monotonic relation between firm size and markups that is first decreasing and then increasing. Finally, the increase is mostly driven by increases within incumbents and also by market share reallocation towards high-markup entrants. |
| Keywords: | Total factor productivity;Capital stocks;Employment;Production;Production functions;Markups,Market power,TFP,Firm size,markup,reallocation,decile,Cobb-Douglas |
| Date: | 2019–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/082&r=all |
| By: | Robert Aue |
| Abstract: | This paper examines the e ect of price competition on the location choices of retail pharmacies in large cities. I exploit a regulatory change in 2004 that introduced price competition for non-prescription drugs to estimate the parameters of a dynamic spatial entry model, using a comprehensive panel dataset of retail pharmacy locations. The dynamic model is estimated by means of a nested xed point approach, because the asymmetric nature of the entry game renders conventional two-step estimators inapplicable. The computational burden of this approach is alleviated by tailoring the concept of oblivious equilibrium, developed by Weintraub et al. (2008), to the spatial nature of the game. I nd that the regulatory change lead to more intense local competition and lower entry costs. The estimated structural model is then used to decompose the e ects of the regulatory change on market structure and consumers' travel distances. I nd that one third of the total decline in the number of pharmacies between 2004 and 2016 is attributable to increased local interaction, whereas it caused the consumers' distance to the nearest pharmacy to increase only marginally. This suggests that price competition is bene cial for consumers not only because it lowers retail prices, but also because it leads to a more ecient spatial distribution of retail pharmacies. |
| Keywords: | spatial competition, oblivious Equilibrium, price Regulation |
| JEL: | L81 L50 R30 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_195&r=all |
| By: | Jarosch, Gregor; Nimczik, Jan Sebastian; Sorkin, Isaac |
| 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. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14231&r=all |
| By: | Norbäck, Pehr-Johan; Olofsson, Charlotta; Persson, Lars |
| Abstract: | Within the policy debate, there is a fear that large incumbent firms buy small firms' inventions to ensure that they are not used in the market. We show that such "acquisitions for sleep" can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does. |
| Keywords: | Acquisitions; Innovation; IP law; ownership; Sleeping patents |
| JEL: | G24 L1 L2 M13 O3 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14172&r=all |
| By: | Condorelli, Daniele (University of Warwick); Szentes, Balazs (London School of Economics) |
| Abstract: | We characterize equilibria of oligopolistic markets where identical firms with constant marginal cost compete a’ la Cournot. For given maximal willingness to pay and maximal total demand, we first identify all combinations of equilibrium consumer and producer surplus that can arise from arbitrary demand functions. Then, as a further restriction, we fix the average willingness to pay above marginal cost (i.e., first best surplus) and identify all possible triples of consumer surplus, producer surplus and deadweight loss. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wcreta:62&r=all |
| By: | Jorge Lemus (University of Illinois Urbana-Champaign); Emil Temnyalov (University of Technology Sydney) |
| Abstract: | We study pay-for-delay settlements between a patent holder and a challenger when the patent holder can introduce follow-on products. We show that ignoring follow-on products biases the inferred competitive harm of pay-for-delay settlements (the ÒActavis inferenceÓ). The reason is that patent invalidation triggers an earlier introduction of follow-on products which changes pay-for-delay negotiationÕs payoffs relative to the case of no follow-on products. When follow-on products are ignored, we show that an inference based on a reverse payment over-estimates patent strength. If parties cannot use payments (as in pure-delay settlements), follow-on products may push the parties to settle on an earlier entry date relative to the entry date negotiated in the absence of follow-on products, and litigation may arise in equilibrium. |
| Keywords: | pay-for-delay; product hopping; evergreening; antitrust; litigation |
| JEL: | D2 K2 K4 L4 L13 O3 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:2019/09&r=all |
| By: | Acemoglu, Daron; Makhdoumi, Ali; Malekian, Azarakhsh; Ozdaglar, Asuman |
| Abstract: | When a user shares her data with an online platform, she typically reveals relevant information about other users. We model a data market in the presence of this type of externality in a setup where one or multiple platforms estimate a user's type with data they acquire from all users and (some) users value their privacy. We demonstrate that the data externalities depress the price of data because once a user's information is leaked by others, she has less reason to protect her data and privacy. These depressed prices lead to excessive data sharing. We characterize conditions under which shutting down data markets improves (utilitarian) welfare. Competition between platforms does not redress the problem of excessively low price for data and too much data sharing, and may further reduce welfare. We propose a scheme based on mediated data-sharing that improves efficiency. |
| Keywords: | data; Informational Externalities; Online markets; privacy |
| JEL: | D62 D83 L86 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14225&r=all |
| By: | Latzer, Helene; Matsuyama, Kiminori; Parenti, Mathieu |
| Abstract: | In the standard horizontal innovation model of endogenous growth, larger economies innovate more and grow faster. Due to the homotheticity of preferences, however, it does not matter whether the large market size comes from a large population or a high per capita expenditure. In this paper, we extend the standard model to allow for nonhomothetic preferences. Among others, we show that, holding the size fixed, economies with higher per capita expenditure and smaller populations innovate more and grow faster for the empirically relevant case of incomplete pass-through, strategic complementarity in pricing, and procompetitive entry. |
| Keywords: | balanced growth; Competition and growth; Demand composition; Directly explicitly additive (DEA) preferences; Endogenous Growth; Horizontal innovation; Incomplete pass-through; Nonhomothetic preferences; Procompetitive entry; Strategic complementarity in pricing |
| JEL: | O11 O31 O33 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14250&r=all |
| By: | Yamada, Mai |
| Abstract: | Using the model based on Inderst and Irmen (2005), we analyze retail industries with competition in business hours and prices and examine the desirable degree of business hours regulation for policy makers who have objectives to enhance the welfare. We find that the strict regulation of business hours, which business hours are regulated in all regions, enhances the welfare only when the transportation cost parameter is relatively large. This implies that, contrary to some previous studies, the deregulation is not always welfare enhancing. Although some countries have regulated business hours only in some regions, such partial regulation might worsen the welfare because a retail store located at deregulated regions charges a higher price. |
| Keywords: | regulation level of business hours; welfare implications |
| JEL: | D21 L51 L81 |
| Date: | 2020–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101392&r=all |
| By: | Soomro, Yasir; Al-Sehli, Ahmed Nafe |
| Abstract: | This research main objective finds the determinants of churn that affect the telecom industry of the Kingdom of Saudi Arabia (KSA). To analyze the churn predictions to retain the customers in the telecom industry, the paper takes factors of churns that create obstacles in the retention of the customers. The variables of the study included switching cost, price, value-added services, and service quality relevant to the telecom industry. The questionnaire was created using adopted items from various studies and was used to collect the data from 315 respondents through non-restricted random sampling. Data reliability and analysis were performed on IBM SPSS®20 software and multiple regressions were applied. The key findings that lower switching costs of cellular network providers significantly lead to customer churn (MNP). This study found that switching costs are not considered a factor if a customer is dissatisfied or innovator in nature to try other companies’ services. Whereas, low service quality, high price structure, and less value-added encourage customers to switch service. The telecom industry should improve its service quality since it is considered one of the most important factors in churning in any industry. This paper would be highly beneficial for the managers of the telecom industry in KSA and other Middle Eastern telecommunication companies. |
| Keywords: | Switching behavior; Service quality, Switching cost; Value-Added services; Client churn rate; Customer churn; Mobile Number Portability (MNP); Pricing structure; Mobile service provider. |
| JEL: | M31 |
| Date: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101398&r=all |
| By: | Jorge Lemus (University of Illinois Urbana-Champaign); Emil Temnyalov (University of Technology Sydney); John L. Turner (University of Georgia) |
| Abstract: | In liability lawsuits (e.g. product liability or patent infringement), a third party demands compensation from a firm. Verifying that the firm harmed the third party requires a costly lawsuit, so parties often negotiate a settlement agreement. Liability insurance improves the firmÕs bargaining leverage when negotiating this settlement. We study this leverage effect of insurance and characterize equilibrium contracts under symmetric and asymmetric information: in a competitive market, only a pooling equilibrium with under-insurance may exist; in a monopolistic setting, the insurer offers at most two contracts which under-insure low-risk types and may inefficiently induce high-risk types to litigate. |
| Keywords: | liability; insurance; litigation; bargaining; adverse selection; competitive equilibrium; monopoly |
| JEL: | C7 D82 G22 K1 K41 |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:2019/11&r=all |
| By: | Atasoy, Ayse Tugba (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)) |
| Abstract: | In distinct decision environments, consumers often fail to financially optimize their decisions. In liberalized electricity markets, consumers frequently do not optimize their electricity choices and stick with the default providers instead, despite the ability to choose among an increasingly large set of electricity suppliers and benefit from lower cost options. In this paper, we study the effect of different contextual features of the choice environment (i.e., default and active choice enforcement) and search costs (i.e., high and low) on the quality of electricity contract choices, with the help of a randomized controlled laboratory experiment. We provide evidence that the default contract rule lowers decision quality compared to the active decision rule in both search cost environments. Default rules lower the quality of contract choices especially for the individuals with lower cognitive ability. Contrary to the expectations, we observe that the number of alternatives has no effect on the quality of electricity contract choices. Our findings have important implications for regulatory rule setting in the electricity market. |
| Keywords: | Contract Switching; Electricity Contracts; Default Rules; Search Costs; Decisionmaking |
| JEL: | C91 D12 D91 Q48 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:fcnwpa:2020_007&r=all |
| By: | Rajssa Mechelli; Andrea Colciago |
| Abstract: | This paper links the debate on the decrease in competitiveness and busi- ness dynamism with that on rising inequality. We build a framework withentry, imperfect competition, heterogeneous households, and incompletemarkets. Recent trends in markups, factors’share, and business dynamismare explained through an increase in barriers to entry for new …rms, whichrestrict competition. Those trends account for 11% to 22% of the increasein income inequality observed between 1989 and 2007 and for 10% of the in-crease in wealth inequality. Just 16% of the population experiences a welfaregain during the transition from a high to a low competition environment.These are either the wealthy, or agents with low productivity relative to their asset holdings. |
| Keywords: | inequality, entry, oligopoly, markups, incomplete markets |
| Date: | 2020–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:914&r=all |
| By: | Gutierrez, German; Philippon, Thomas |
| Abstract: | We study the entry and exit of firms across U.S. industries over the past 40 years. The elasticity of entry with respect to Tobin's Q was positive and significant until the late 1990s but declined to zero afterwards. Standard macroeconomic models suggest two potential explanations: rising entry costs or rising returns to scale. We find that neither returns to scale nor technological costs can explain the decline in the Q elasticity of entry, but lobbying and regulations can. We reconcile conflicting results in the literature and show that regulations drive down the entry and growth of small firms relative to large ones, particularly in industries with high lobbying expenditures. We conclude that lobbying and regulations have caused free entry to fail. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14219&r=all |
| By: | Akio Ino; Yusuke Matsuki |
| Abstract: | In this paper, we analyze the effect of a merger between banks by extending a structural model of banking industry with possibility of bank runs developed by Egan et al. (2017). This allows us to evaluate a merger in the banking sector, taking into account the effect on not only the merged bank itself, but also the stability of the entire financial system. We use our framework to analyse if the merger between Wells Fargo and Wachovia was beneficial to the social welfare. When the model is calibrated to the data in 2008, the merger increases the market share of the merged bank and thus allows it to set higher markup, which implies lower deposit interest rates. Through competition, this lowers the default probability of other banks in normal times. When crisis occurs to banks other than the merged bank, the default probability increases as the merged bank responds to crisis sharply. On the other hand, when the bank run occurs at the merged bank, the default probability is lower because it has higher profits. The merger increases the social welfare in normal times and when a bank run occurs at the merged bank, and decreases the social welfare when a bank run occurs at the other banks. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:tcr:wpaper:e149&r=all |
| By: | Brown, Ian |
| Abstract: | This briefing paper on interoperability as a pro-competition policy tool is based on a synthesis of recent comprehensive policy reviews of digital competition in major economies, and related academic literature, focusing on areas of emerging consensus while noting important disagreements. It draws particularly on the Vestager, Furman and Stigler reviews and UK Competition and Markets Authority’s study on digital advertising. This is the first of a series of three papers. The second paper will consider interoperability in practice, looking in detail at the technical implications. The third paper will analyse the impact of interoperability on phenomena such as privacy and disinformation (preliminary versions of which appear in this first review.) These further papers will draw more heavily on interviews with software developers, platform operators, government officials, and academic and civil society experts working in this field. |
| Date: | 2020–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:osf:lawarx:fbvxd&r=all |