|
on Industrial Competition |
| By: | Janssen, Aljoscha (Singapore Management University, and); Kasinger, Johannes (Goethe University Frankfurt and Leibniz Institute for Financial Research SAFE) |
| Abstract: | This paper studies the behavior of competing firms in a duopoly with rational inattentive consumers. Firms play a sequential game in which they decide to obfuscate their individual prices before competing on price. Probabilistic demand functions are endogenously determined by the consumers' optimal information strategy, which depends on the firms' obfuscation choice and the consumers' unrestricted prior beliefs. We show that the game may result in an obfuscation equilibrium with high prices where both firms obfuscate and a transparency equilibrium with low prices and no obfuscation, providing an argument for market regulation. Lower information costs and asymmetric prior beliefs about prices reduce the probability of an obfuscation equilibrium. Using data on Sweden, we document a decrease in price complexity and corresponding prices in the market for mobile phone subscriptions in the last two decades. Our model rationalizes these changes and explains why complexity and high prices persist in some but not all digitalized markets. |
| Keywords: | Rational Inattention; Obfuscation; Price Competition; Digitalized Markets |
| JEL: | D11 D21 D43 |
| Date: | 2021–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1379&r=all |
| By: | Lømo, Teis Lunde (University of Bergen, Department of Economics); Meland, Frode (University of Bergen, Department of Economics); Sandvik, Håvard Mork (Norwegian Competition Authority) |
| Abstract: | Slotting allowances are lump-sum fees paid by manufacturers in return for retail shelf space. We present a novel mechanism by which such upfront payments facilitate vertical foreclosure and thereby reduce product variety. When bidding for the patronage of two retailers, one manufacturer may foreclose a symmetric rival by offering slotting allowances paired with per-unit input prices that offset downstream competition ex post. Contrary to the conventional wisdom, slotting allowances can exclude first-rate brands of powerful manufacturers. Our results are in line with recent empirical evidence on slotting allowances but cast doubt on the current policy approach to these payments. |
| Keywords: | vertically related markets; slotting allowances; product variety; vertical foreclosure; exclusion; antitrust policy |
| JEL: | L13 L14 L42 |
| Date: | 2020–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2020_007&r=all |
| By: | Gabrielsen, Tommy Staahl (University of Bergen, Department of Economics); Johansen, Bjørn Olav (University of Bergen, Department of Economics); Straume, Odd Rune (Department of Economics, University of Minho) |
| Abstract: | We study the incentives of national retail chains to adopt national (uniform) prices across local markets that differ in size and competition intensity. In addition to price, the chains may also compete along a quality dimension, and quality is always set locally. We show that absent quality competition, the chains will never use national pricing. However, if quality competition is sufficiently strong there exist equilibria where at least one of the chains adopts national pricing. We also identify cases in which national pricing benefits (harms) all consumers, even in markets where such a pricing strategy leads to higher (lower) prices. |
| Keywords: | National pricing; local pricing; retail chains; price and quality competition |
| JEL: | L11 L13 L21 |
| Date: | 2020–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2020_008&r=all |
| By: | Maximilian Andres; Lisa Bruttel; Jana Friedrichsen |
| Abstract: | The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result. |
| Keywords: | cartel, judgment of communication, corporate leniency program, price competition, experiment |
| JEL: | C92 D43 L41 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1926&r=all |
| By: | Luciano Fanti; Domenico Buccella; Luca Gori |
| Abstract: | This paper investigates the effects of a public R&D subsidy policy in a duopoly market of a firm outsourcing input supplies (VS) from its downstream integrated rival (VI). It is shown that a policy setting a R&D subsidy uniform for both downstream competitors has in this market structure relevant effects largely differentiated between competitors. This is because it may significantly modify the relative market shares and profitability of the competing firms. In particular the ultimate effect is to determine R&D investments relatively larger in the VI firm and to shift market shares in favour of the VI firms, with the possible consequence even of a transfer of profits from the VS to the VI firm. Therefore, these findings offer some testable implications and suggest that a subsidy policy in a market with outsourcing to a rival should take also into account of its differential effects on the "competitors". |
| Keywords: | outsourcing, R&D, subsidy policy |
| JEL: | D43 L13 L21 |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2020/267&r=all |
| By: | Jacob Bikker; Jack Bekooij |
| Abstract: | This paper investigates the impact of market forces on competitive behaviour and efficiency in healthcare by investigating the Dutch healthcare insurance reform in 2006. This reform replaced the dual system of public and private insurance with a single compulsory health insurance scheme, in which insurance providers compete for customers in a free market. We measure competition directly from either shifts in market shares, or developments in profits. Using formal tests we find that in each approach a structural break occurs after the reform: competition is significantly higher after 2006 than before. Several robustness tests confirm this outcome. Nevertheless, we find that the health insurance sector is still less competitive than the banking, manufacturing and service industries, and even less competitive than life insurance. |
| Keywords: | (regulated) competition; concentration; healthcare insurance; performance-conduct-structure model; Boone-indicator; scale economies |
| JEL: | G22 H51 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:705&r=all |
| By: | Vartanov, Sergey |
| Abstract: | . A wide body of literature on economic theory is devoted to the analysis of industrial goods markets with the possibility of advertising influence on demand. However, these models do not view media as industry entities with their own strategic goals and objectives. On the other hand, the main models of behavior of media firms, considering them as platforms connecting consumers with manufacturers (models of two-sided markets), do not take into account the simultaneous consumption of the products of industrial firms and their content by the audience and the production nature of the problems solved by industrial firms. In this regard, this paper proposes a methodology for constructing models of a new type of market, including three types of participants - consumers, media firms and industrial manufacturing firms. In accordance with the proposed methodology, a model of the simplest three-sided market is constructed, for which the questions of existence and properties of equilibrium are discussed. The results of such modeling can find application in the study of intersectoral interaction between the media industry and any industry. |
| Keywords: | media strategy, media economy, strategy theory, consumer behavior, models of imperfect competition, media advertising market |
| JEL: | C60 C70 D01 D11 D21 D60 M37 |
| Date: | 2020–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104553&r=all |
| By: | Merino Troncoso, Carlos |
| Abstract: | I estimate the macroeconomic impact of competition policy to deter collusion and merger control in the EU using a dynamic macroeconomic model . The impact was estimated using a traditional Dynamic Stochastic General Equilibrium Model and an upgraded version that includes Central Bank quantitative easing policies. When these are included in the model the macroeconomic effects are higher than previously estimated. |
| Keywords: | competition policy, macroeconomic impact, DSGE |
| JEL: | L40 L44 |
| Date: | 2021–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105168&r=all |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | Consider a market with identical ï¬ rms offering a homogeneous good. A consumer obtains price quotes from a subset of ï¬ rms and buys from the ï¬ rm offering the lowest price. The “price count†is the number of ï¬ rms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we derive a tight upper bound (under ï¬ rst-order stochastic dominance) on the equilibrium distribution of sales prices. The bound holds across all models of ï¬ rms’ common-prior higher-order beliefs about the price count, including the extreme cases of full information (ï¬ rms know the price count) and no information (ï¬ rms only know the ex ante distribution of the price count). A qualitative implication of our results is that a small ex ante probability that the price count is equal to one can lead to a large increase in the expected price. The bound also applies in a large class of models where the price count distribution is endogenously determined, including models of simultaneous and sequential consumer search. |
| Keywords: | Search, Price Competition, Bertrand Competition, "Law of One Price", Price Count, Price Quote, Information Structure, Bayes Correlated Equilibrium |
| JEL: | D41 D42 D43 D83 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2224r2&r=all |
| By: | Rod Garratt; Michael Junho Lee |
| Abstract: | In a market where consumers choose between payment options and firms compete with products and prices, we show that payment data drives the formation of a market monopoly. A data-sharing policy can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers’ welfare by enabling them to monetize their private information. We discuss the potential role of central banks in providing digital cash. |
| Keywords: | customer data; privacy; market structure; digital cash; payments |
| JEL: | E42 L11 L15 |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89474&r=all |
| By: | Rodriguez Castelan, Carlos (World Bank); Araar, Abdelkrim (Université Laval); Malásquez, Eduardo A. (World Bank); Olivieri, Sergio (World Bank); Vishwanath, Tara (World Bank) |
| Abstract: | Understanding the economic and social effects of the recent global trends of rising market concentration and market power has become a policy priority. 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 illustrates the likely 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 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. |
| Keywords: | poverty, inequality, market concentration, distributional effects, simulation, Mexico |
| JEL: | C15 D31 D42 D43 E37 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14043&r=all |
| By: | Korff, Alex |
| Abstract: | This paper studies the relationship between retail gasoline pricing strategies and potential demand. Utilising detailed data on traffic on the German Autobahn and the special case of Bundesautobahntankstellen, the interaction between demand and price competition is studied, as are the changes in competition intensity across distances and road networks. The observed relationships match an Edgeworth cycling behaviour, whose steps appear to be determined by the changes in demand. Cycling intensity and undercutting increase with traffic, while relenting phases are timed to substantial changes in traffic ows. Thus, competition is found to intensify with rising potential demand, as that increases the incentives of undercutting. |
| Keywords: | Retail gasoline prices,Edgeworth Cycles,Regional Infrastructure,Price Competition |
| JEL: | D22 D40 L11 L81 R12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:359&r=all |
| By: | Zhiguo He (University of Chicago, Booth School of Business); Jing Huang (University of Chicago, Booth School of Business); Jidong Zhou (Cowles Foundation, Yale University) |
| Abstract: | Open banking facilitates data sharing consented by customers who generate the data, with a regulatory goal of promoting competition between traditional banks and challenger ï¬ ntech entrants. We study lending market competition when sharing banks’ customer data enables better borrower screening or targeting by ï¬ ntech lenders. Open banking could make the entire ï¬ nancial industry better off yet leave all borrowers worse off, even if borrowers could choose whether to share their data. We highlight the importance of equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. When data sharing triggers privacy concerns by facilitating exploitative targeted loans, the equilibrium sign-up population can grow with the degree of privacy concerns. |
| Keywords: | Open banking, Data sharing, Banking competition, Digital economy, Winner's curse, Privacy, Precision marketing |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2262&r=all |
| By: | Domenico Buccella; Luciano Fanti |
| Abstract: | In an industry with homogeneous goods, this note compares the standard incumbent's strategic capacity choice vs the incumbent's pre-emptive payment (profit) transfer (PPT) strategy (i.e., preentry acquisition). It is shown that, via the transfer option, the incumbent holds its monopoly position "dissuading" the potential competitor entry for a range of fixed costs larger than under strategic capacity. Moreover, in that range, the monopolist via transfer ensures higher payoffs both for itself and the potential competitor. That is, in contestable markets, the incumbent can keep its dominant position in an easier way than standard models predict. |
| Keywords: | Entry deterrence, Monopoly, Duopoly |
| JEL: | L13 L21 |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2020/265&r=all |
| By: | Luttmann, Alexander; Gaggero, Alberto A |
| Abstract: | Discounts during Thanksgiving and Christmas are common in a variety of retail markets. Although classical economic theory predicts that prices should increase when aggregate demand is high, one possibility is that consumers are more price elastic during seasonal demand peaks. In this article, we examine holiday pricing in the airline industry. Exploiting a unique panel of almost 22 million fares, we find that fares purchased on a holiday are 1.8% cheaper, supporting the conjecture that airlines price discriminate when the mix of purchasing passengers makes demand more elastic. These holiday booking discounts are also found to be larger in competitive markets, with the largest discounts reserved for flights within one-week of departure. In contrast to flights purchased on a holiday, we find that traveling on a holiday is more expensive. Consistent with peak-load pricing, we estimate travel premiums ranging from 41.6% to 82.0% on national holidays and from 4.6% to 35.0% on federal holidays. |
| Keywords: | advance-purchase discounts, airline pricing, peak-load pricing, price discrimination, sales |
| JEL: | D40 L11 L13 L93 |
| Date: | 2020–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104863&r=all |
| By: | Wilson, Kyle; Xiao, Mo; Orazem, Peter F. |
| Abstract: | In a rapidly growing industry, potential entrants strategically choose which local markets to enter. Facing the threat of additional entrants, a potential entrant may lower its expectation of future profits and delay entry into a local market, or it may accelerate entry due to preemptive motives. Using the evolution of local market structures of broadband Internet service providers from 1999 to 2007, we find that the former effect dominates the latter after allowing for spatial correlation across markets and accounting for endogenous market structure. On average, it takes 2 years longer for threatened markets to receive their first broadband entrant. Moreover, this entry delay has long†run negative implications for the divergence of the U.S. broadband infrastructure: 1 year of entry delay translates into an 11% decrease on average present†day download speeds. |
| Date: | 2020–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202011290800001120&r=all |
| By: | Fischer, Christian; Rasch, Alexander; Wenzel, Tobias |
| Abstract: | This paper analyzes a market in which two horizontally differentiated firms compete by setting menus of two-part tariffs, and in which some consumers are not informed about the linear per-unit price component. We consider two regulatory interventions that limit firms' ability to price discriminate: (i) diminishing the range of contracts via a reduction in the number of two-part tariffs offered (which prohibits inter-group price discrimination), and (ii) a reduction in tariff complexity via the abolishment of linear fees (which prohibits inter- and intra-group price discrimination). We characterize the effects of these interventions on firm profits and (informed and uninformed) consumer welfare, and identify conditions for the optimal policy. Our results provide insights for the evaluation of recent policy interventions (e.g., the regulation of roaming charges in the EU market). |
| Keywords: | Two-part tariffs,Consumer attention,Policy intervention |
| JEL: | D43 L13 L42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20075&r=all |
| By: | Gu, Yiquan; Rasch, Alexander; Wenzel, Tobias |
| Abstract: | This paper examines the publication of quality indicators in service markets with public finance systems, such as education and healthcare markets. We provide a spatial model of product differentiation in which the reporting of such indicators increases consumers' decision weight on quality relative to other attributes (such as prices and horizontal match) and study the effects in two market environments: markets with regulated prices and markets with unregulated prices. We find that the publication of quality indicators increases quality investments by service providers, but also leads to higher prices and less product variety. Consumer and total welfare may decrease with such policies, in particular when consumers are heavily subsidised. |
| Keywords: | Service markets,Quality reporting,Variety,Entry,Regulation,Public finance |
| JEL: | L15 L51 I10 I20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20087&r=all |
| By: | David M\"uller; Yurii Nesterov; Vladimir Shikhman |
| Abstract: | Recently, there is growing interest and need for dynamic pricing algorithms, especially, in the field of online marketplaces by offering smart pricing options for big online stores. We present an approach to adjust prices based on the observed online market data. The key idea is to characterize optimal prices as minimizers of a total expected revenue function, which turns out to be convex. We assume that consumers face information processing costs, hence, follow a discrete choice demand model, and suppliers are equipped with quantity adjustment costs. We prove the strong smoothness of the total expected revenue function by deriving the strong convexity modulus of its dual. Our gradient-based pricing schemes outbalance supply and demand at the convergence rates of $\mathcal{O}(\frac{1}{t})$ and $\mathcal{O}(\frac{1}{t^2})$, respectively. This suggests that the imperfect behavior of consumers and suppliers helps to stabilize the market. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2101.04486&r=all |
| By: | Fugger, Nicolas; Laitenberger, Ulrich |
| Abstract: | Problem Definition: We consider a buyer that needs to source a fixed quantity. She faces several potential suppliers that might fail to deliver. The buyer conducts a procurement auction to determine contract suppliers and can choose between single-sourcing and multi-sourcing. If contract suppliers fail to deliver, the buyer tries to source from non-contract suppliers but has little bargaining power due to time pressure. Academic/Practical Relevance: The mitigation of supply risks plays an important role in procurement practice but attracted little attention in the academic analysis of procurement auctions. Academic research on multi-sourcing procurement auction typically analyzes these auctions as stand-alone events. In contrast, we investigate the influence of the auction design on the post-auction market structure and identify an effect favoring multi-sourcing. The insights provide procurement managers guidance for their sourcing decisions. Methodology: We apply game-theoretical methods to analyze a stylized model in which a cost-minimizing buyer needs to source from profit-maximizing suppliers who might fail to deliver. The buyer conducts a procurement auction to determine contract suppliers and can choose between single-sourcing and multi-sourcing. If contract suppliers fail to deliver, the buyer tries to source from a non-contract supplier. We assume that in this situation, the non-contract supplier has almost all the bargaining power. Results: First, we show that in such a setting multi-sourcing does not only reduce the supply risk but might also yield lower prices than single-sourcing. The sourcing decision affects the post-auction market structure such that being a non-contract supplier becomes less attractive in case of multi-sourcing. Second, if suppliers are heterogeneous regarding their disruption probabilities, less reliable suppliers will bid more aggressively than their more reliable competitors causing an adverse selection problem. Furthermore, we show that attracting an additional supplier can be risky as it can increase the auction price and the buyer's total expenses. Managerial Implications: Our analysis reveals a pro-competitive effect of multi-sourcing. This effect is especially important if the buyer's value for the item is substantially larger than suppliers' production costs and for intermediate disruption probabilities. |
| Keywords: | Adverse selection,auctions,multi-sourcing,supply disruptions,procurement |
| JEL: | D44 D47 H57 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20082&r=all |
| By: | Paul, Cocioc |
| Abstract: | The article present a brief analyze of theoretical virtues of free competition in relation with some visible limits and negative consequences observed in real economic life. Social intervention to correct (at least in part) those social failures and the new responses of the firms are discussed too. Possible motivations of these new actions are presented in connection with technocratic model of firm management. It seems that the model of professionalization of firm leadership created not only a new structure within the category of the intermediaries (one with extremely high powers), but later generated new interests typical for a social category. The intermediary develops his own agenda and seeks to control not only the market but also the business owners (which is possible in the conditions of the fragmentation of the large property). They have the power to distort and undermine normal competition (or at least to try it) and that conduct to some practices at legal and ethical borderline. |
| Keywords: | competition; technocracy; market failure; exclusion; inequality |
| JEL: | D40 D42 K21 L11 L12 L41 |
| Date: | 2020–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104754&r=all |
| By: | Ruda Zhang; Roger Ghanem |
| Abstract: | We consider a variant of Cournot competition, where multiple firms allocate the same amount of resource across multiple markets. We prove that the game has a unique pure-strategy Nash equilibrium (NE), which is symmetric and is characterized by the maximal point of a "potential function". The NE is globally asymptotically stable under the gradient adjustment process, and is not socially optimal in general. An application is in transportation, where drivers allocate time over a street network. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.06742&r=all |
| By: | Bokhari, Farasat A. S.; Yan, Weijie |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp678&r=all |
| By: | Hiroshi Kitamura; Noriaki Matsushima; Misato Sato |
| Abstract: | We explore the supply chain problem of a downstream durable goods monopolist, who chooses one of the following trading modes: an exclusive supply chain with an incumbent supplier or an open supply chain, allowing the monopolist to trade with a new efficient entrant in the future. The expected retail price reduction in the future dampens the profitability of the original firms. An efficient entrant's entry magnifies such a price reduction, causing a further reduction of original firms' joint profits. In equilibrium, the downstream monopolist chooses the exclusive supply chain to escape further price reductions, although it expects efficient entry. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1115&r=all |
| By: | Damien Besancenot (UP - Université de Paris, LIRAES - EA 4470 - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UP - Université de Paris); Karine Lamiraud (ESSEC Business School - Essec Business School, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Radu Vranceanu (ESSEC Business School - Essec Business School, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université) |
| Abstract: | The French market for specialist physician care has a dual legal structure: physicians must exclusively work in sector 1 and charge regulated fees or in sector 2, where they can freely set their fees. Patient out-of-pocket payments in sector 2 are partially covered by private insurance. The primary differentiating factor between both sectors is the number of patients per specialist, which in turn directly affects the overall quality of the service provided. We built an equilibrium model to analyse both specialists decisions about which sector to work in, and patients choice of physician and therefore sector. More specifically, the model allowed us to study the effect of changes in prices and economy-wide patient-to-specialist ratios on profits and patients utility associated with the services provided in each sector. |
| Keywords: | Dual market,Congestion,Regulation,Balance billing |
| Date: | 2020–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03028437&r=all |
| By: | Rodriguez Castelan, Carlos (World Bank); Araar, Abdelkrim (Université Laval); Malásquez, Eduardo A. (World Bank); Ochoa, Rogelio Granguillhome (World Bank) |
| Abstract: | This paper presents a novel method for estimating the likely welfare effects of competition reforms for both current and new consumers. Using household budget survey data for 2015/16 for Ethiopia and assuming a reform scenario that dilutes the market share of the state-owned monopoly to 45 percent, the model predicts a 25.3 percent reduction in the price of mobile services and an increase of 4.6 million new users. This reform would generate a welfare gain of 1.37 percent among all consumers. Poverty rates are expected to decline by 0.31 percentage points, driven by a reduction of 0.22 percentage points for current consumers and 0.09 percentage points among new users. Inequality would increase by 0.23 Gini points since better off consumers are more likely to reap the benefits of greater competition. This method represents a powerful tool for supporting the analysis of competition reforms in developing countries, particularly in sectors known for excluding significant segments of the population due to high consumer prices. |
| Keywords: | competition reform, ICT, welfare effects, simulations, Ethiopia |
| JEL: | C15 D40 D60 I32 L86 N77 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14044&r=all |
| By: | Artz, Georgeanne M.; Eathington, Liesl; Francois, Jasmine; Masinde, Melvin; Orazem, Peter F. |
| Abstract: | Using data on the universe of taxable retail sales, retail firm start-ups, and retail firm exits in Iowa from 1992 through 2011, we test whether patterns of retail firm entry and exit are consistent with churning. Consistent with churning, the same factors that increase retail sales in a local market also increase new retail firm entry and either increase or do not affect retail firm exit. Evidence suggests that there is more churning in urban than in rural markets. Similar evidence is found using a sample of national firm entry and exit into local markets. If churning increases productivity growth, then the greater churning rate in urban markets is another source of agglomeration advantages in thick markets. |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202001010800001782&r=all |
| By: | Gu, Grace (University of California Santa Cruz); Malik, Samreen (New York University AD); Pozzoli, Dario (Department of Economics, Copenhagen Business School); Rocha, Vera (Department of Strategy and Innovation, Copenhagen Business School) |
| Abstract: | This paper examines whether Chinese import competition increases the propensity for firms to offshore production or to cease any involvement in production by switching completely and permanently out of the manufacturing sector (servitization). Using a Danish employer-employee matched dataset covering a large sample of manufacturing firms over the 1995-2012 period, we find that import competition from China significantly increases offshoring but does not induce servitization. These findings are confirmed using various robustness tests as well as an analogous analysis of a Portuguese employer-employee matched dataset. |
| Keywords: | Foreign competition; Offshoring; Servitization |
| JEL: | F12 F14 O31 |
| Date: | 2021–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2021_005&r=all |
| By: | Xuejian Wang |
| Abstract: | Industries can enter one country first, and then enter its neighbors' markets. Firms in the industry can expand trade network through the export behavior of other firms in the industry. If a firm is dependent on a few foreign markets, the political risks of the markets will hurt the firm. The frequent trade disputes reflect the importance of the choice of export destinations. Although the market diversification strategy was proposed before, most firms still focus on a few markets, and the paper shows reasons.In this paper, we assume the entry cost of firms is not all sunk cost, and show 2 ways that product heterogeneity impacts extensive margin of exports theoretically and empirically. Firstly, the increase in product heterogeneity promotes the increase in market power and profit, and more firms are able to pay the entry cost. If more firms enter the market, the information of the market will be known by other firms in the industry. Firms can adjust their behavior according to other firms, so the information changes entry cost and is not sunk cost completely. The information makes firms more likely to entry the market, and enter the surrounding markets of existing markets of other firms in the industry. When firms choose new markets, they tend to enter the markets with few competitors first.Meanwhile, product heterogeneity will directly affect the firms' network expansion, and the reduction of product heterogeneity will increase the value of peer information. This makes firms more likely to entry the market, and firms in the industry concentrate on the markets. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.07008&r=all |
| By: | Jurjen Kamphorst (Erasmus University Rotterdam); Vladimir Karamychev (Erasmus University Rotterdam) |
| Abstract: | We offer a theory of how the combination of budget constraints and insurance drives up prices. A natural context for our theory is the health care market, where drug prices can be very high. Our model predicts that monopoly prices for orphan drugs are inversely related to the prevalence up until a maximum price. This is supported by empirical evidence in the literature. As a result, prices of drugs sold by a monopoly treating rare serious diseases are doomed to go sky high. |
| Keywords: | Monopoly pricing, Insurance, Orphan Drugs |
| JEL: | D42 G22 I13 |
| Date: | 2021–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210005&r=all |
| By: | Mattia Guerini (COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019), GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Philipp Harting (Universität Bielefeld = Bielefeld University); Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur) |
| Abstract: | We develop a model to study the impact of corporate governance on firm investment decisions and industry competition. In the model, governance structure affects the distribution of shares among short-and long-term oriented investors, the robustness of the management regarding possible stockholder interference, and the managerial remuneration scheme. A bargaining process between firm's stakeholders determines the optimal allocation of financial resources between real investments in R&D and financial investments in shares buybacks. We characterize the relation between corporate governance and firm's optimal investment strategy and we study how different governance structures shape technical progress and the degree of competition over the industrial life cycle. Numerical simulations of a calibrated setup of the model show that pooling together industries characterized by heterogeneous governance structures generate the well-documented inverted-U shaped relation between competition and innovation. |
| Keywords: | governance structure,industry dynamics,competition,technical change |
| Date: | 2020–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03040281&r=all |
| By: | Healy, Gerald T., III; Tan, Jing Ru; Orazem, Peter F. |
| Abstract: | Using Forbes magazine’s estimates of the current value and revenues of professional sports teams, we derive a long-run variant of the Lerner Index. We apply the strategy to professional teams in baseball, basketball, football, and hockey over the 2006–2019 period. All teams have positive and significant price-cost margins over the entire period. Analysis of variance shows that local market factors and past team performance have less impact on a team’s market power than do common league-wide effects. The strongest market power is in leagues with more aggressive revenue sharing policies. Price-cost margins are higher for professional teams in North American than for the most valuable European soccer teams, consistent with the stronger exemption from antitrust law in the United States and the weaker revenue sharing policies in Europe. |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202001010800001030&r=all |