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on Industrial Competition |
| By: | Thomas Hasenzagl; Luis Perez |
| Abstract: | How much has market power increased in the United States in the last fifty years? Using micro-level data from U.S. Compustat, we find that several indicators of market power have steadily increased since 1970. The aggregate markup has gone up from 10% of price over marginal cost in 1970 to 23% in 2020, and aggregate returns to scale have risen from 1.00 to 1.13. We connect these market-power indicators to profitability by showing that the aggregate profit share can be expressed in terms of the aggregate markup, aggregate returns to scale, and a sufficient statistic for production networks that captures double marginalization in the economy. We find that despite the rise in market power, the profit share has been constant at 18% of GDP because the increase in monopoly rents has been completely offset by rising fixed costs. Our empirical results have subtle implications for policymakers: overly aggressive enforcement of antitrust law could decrease firm dynamism and paradoxically lead to lower competition and higher market power. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.12945&r=com |
| By: | Filippo Biondi (KU Leuven and Research Foundation Flanders (FWO)); Sergio Inferrera (Queen Mary University of London); Matthias Mertens (Halle Institute for Economic Research (IWH) and the Competitiveness Research Network (CompNet)); Javier Miranda (Halle Institute for Economic Research (IWH) and the Competitiveness Research Network (CompNet)) |
| Abstract: | We study the changing patterns of business dynamism in Europe after 2000 using novel micro-aggregated data that we collect for 19 European countries. In all of them, we document a decline in job reallocation rates that concerns most economic sectors. This is mainly driven by dynamics within sectors, size classes, and age classes rather than by compositional changes. Large and mature firms show the strongest decline in job reallocation rates. Simultaneously, the shares of employment and sales of young firms decline. Consistent with US evidence, firms’ employment changes have become less responsive to productivity. However, the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive a firm-level framework that relates changes in firms’ productivity, market power, and technology to job reallocation and firms’ responsiveness. |
| Keywords: | Business dynamism, productivity, responsiveness of labor demand, market power, European cross-country data, technological change |
| JEL: | D24 J21 J23 J42 L11 L25 |
| Date: | 2023–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2023-011&r=com |
| By: | Meghana Ayyagari (School of Business, George Washington University); Asli Demirguc-Kunt (Center for Global Development); Vojislav Maksimovic (Robert H Smith School of Business at the University of Maryland) |
| Abstract: | The large divergence in the returns of top-performing star firms and the rest of the economy is substantially reduced when we account for the mismeasurement of intangible capital. Star firms produce and invest more per dollar of invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as non-stars. While star firms have higher markups, these are predicted early in their life-cycle at a time when they are small. Overall, correcting for mismeasurement, the evidence points to superior ability of star firms to use tangible and intangible capital. |
| JEL: | E22 L1 |
| Date: | 2022–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:627&r=com |
| By: | Xingchen Xu; Stephanie Lee; Yong Tan |
| Abstract: | Recent academic research has extensively examined algorithmic collusion resulting from the utilization of artificial intelligence (AI)-based dynamic pricing algorithms. Nevertheless, e-commerce platforms employ recommendation algorithms to allocate exposure to various products, and this important aspect has been largely overlooked in previous studies on algorithmic collusion. Our study bridges this important gap in the literature and examines how recommendation algorithms can determine the competitive or collusive dynamics of AI-based pricing algorithms. Specifically, two commonly deployed recommendation algorithms are examined: (i) a recommender system that aims to maximize the sellers' total profit (profit-based recommender system) and (ii) a recommender system that aims to maximize the demand for products sold on the platform (demand-based recommender system). We construct a repeated game framework that incorporates both pricing algorithms adopted by sellers and the platform's recommender system. Subsequently, we conduct experiments to observe price dynamics and ascertain the final equilibrium. Experimental results reveal that a profit-based recommender system intensifies algorithmic collusion among sellers due to its congruence with sellers' profit-maximizing objectives. Conversely, a demand-based recommender system fosters price competition among sellers and results in a lower price, owing to its misalignment with sellers' goals. Extended analyses suggest the robustness of our findings in various market scenarios. Overall, we highlight the importance of platforms' recommender systems in delineating the competitive structure of the digital marketplace, providing important insights for market participants and corresponding policymakers. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.14548&r=com |
| By: | Liang Chen; Yao Luo |
| Abstract: | Network effects, i.e., an agent's utility may depend on other agents' choices, appear in many contracting situations. Empirically assessing them faces two challenges: an endogeneity problem in contract choice and a reflection problem in network effects. This paper proposes a nonparametric approach to tackle both challenges by exploiting restriction conditions from both demand and supply sides. We illustrate our methodology in the yellow pages advertising industry. Using advertising purchases and nonlinear price schedules from seven directories in Toronto, we find positive network effects, which account for a substantial portion of the publisher's profit and businesses' surpluses. We finally conduct counterfactuals to assess the overall and distributional welfare effects of the nonlinear pricing scheme relative to an alternative linear pricing scheme with and without network effects. |
| Keywords: | Identification, Asymmetric Information, Network Effects, Nonlinear Pricing |
| JEL: | L11 L12 L13 |
| Date: | 2023–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-758&r=com |
| By: | Panhans, Matthew T. |
| Abstract: | In 1982, Joe Bain was designated a Distinguished Fellow of the AEA, with an accompanying statement referring to him as “the undisputed father of modern Industrial Organization Economics.” The Structure-Conduct-Performance paradigm that Bain developed and deployed had been the core framework of industrial organization for two decades, and had a significant impact on competition policy from the 1950s through the 1970s. And yet by the time of Bain’s designation as a Distinguished Fellow, industrial organization was shifting away from SCP and instead relying on a foundation of game theory. This essay considers what made the SCP framework so influential in the United States, what shortcomings economists identified in the framework during the shift to the “new IO” in the late 1970s, and what lasting contributions the SCP research program made. |
| Date: | 2023–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:dvm3e&r=com |
| By: | Daniel Rehsmann; Béatrice Roussillon; Paul Schweinzer |
| Abstract: | We model competition on a credence market governed by an imperfect label, signaling high quality, as a rank-order tournament between firms. In this market interaction, asymmetric firms jointly and competitively control the underlying quality ranking’s precision by releasing individual information. While the labels and the information they are based on can be seen as a public good guiding the consumers’ purchasing decisions, individual firms have incentives to strategically amplify or counteract the competitors’ information emission, thereby manipulating the label’s (or ranking’s) discriminatory power. Elements of the introduced theory are applicable to several (credence-good) industries which employ labels or rankings, including academic departments, books, music, and investment opportunities. |
| Keywords: | labelling, credence goods, contests, product differentiation |
| JEL: | C70 D70 H40 M30 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10632&r=com |
| By: | Pavlov, Pavel (Павлов, Павел) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | The aim of the work is to test approaches to the analysis of the characteristics of local labor markets in Russia using big micro-level data. The first chapter deals with modern theoretical and empirical approaches to the study of local labor markets, the concept of market power and concentration of the labor market. The second chapter presents a model of the connection between the market power of employers and the wages of employees, and formulates the theoretical hypotheses of the study. The third chapter reveals approaches to the development of a database on local labor markets, highlights patterns that are characteristic of the Russian labor market. The fourth chapter provides an empirical analysis of the influence of the characteristics of Russian local labor markets on the level of wages of workers. The fifth chapter summarizes the results and formulates recommendations based on the results of the study. |
| Keywords: | local labor markets, labor demand, labor supply, concentration indicators, market power, wages, microlevel big data |
| Date: | 2022–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:w20220167&r=com |
| By: | Comisión Nacional de los Mercados y la Competencia (CNMC) (Comisión Nacional de los Mercados y la Competencia (CNMC)) |
| Abstract: | Based on the review of studies on the subject, this document explains how measures to promote competition and efficient regulation can help moderate prices and facilitate the work of economic authorities in their objective of controlling inflation. In addition, these measures have the capacity to mitigate the negative effects of inflation on purchasing power by boosting growth and employment, for the benefit of society, particularly the lowest-income and most vulnerable groups. |
| Keywords: | Purchasing power, Prices, Inflation, Regulation, Competition |
| JEL: | D3 D4 E31 K2 L4 O4 |
| Date: | 2023–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:awo:epaper:g-2022-02_eng&r=com |
| By: | Alexis Drach (IDHES - Institutions et Dynamiques Historiques de l'Économie et de la Société - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay) |
| Abstract: | Between the late 1950s and the mid-1970s, most large European commercial banks created European banking clubs, which were hybrid cooperative organisations meant to respond to American competition and to the progress of European integration. Based on the archives of several commercial banks from France and the UK, this article examines how the three main European clubs (EBIC, Europartners, and ABECOR) emerged and developed in the 1960s and 1970s, and continued to exist despite increasing challenges in the 1980s. The article argues that banking clubs were an early attempt at creating truly `European' banks, or European champions, even though their experience was abandoned. They also participated in European integration in a different way than the one the European Commission promoted. These clubs were an important institutional response of European banks to both globalisation and European integration. |
| Keywords: | banking clubs, British banks, cartels, commercial banks, common banking market, competition law, consortium banks, cooperation, European banking, European champions, European enterprises, European integration, French banks, globalisation |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04112324&r=com |
| By: | Zachary Liscow; Will Nober; Cailin Slattery |
| Abstract: | Infrastructure costs in the United States are high and rising. The procurement process is one potential cost driver. In this paper we conduct a survey of procurement practices across the 50 states. We survey both employees at each state department of transportation (DOT) and the road builders that win contracts to build and maintain roads. With this survey we are able to create a new dataset of procurement rules and practices across the U.S. and understand what actors on the ground think drive costs. We then assemble a new dataset of project-level infrastructure costs. We correlate the survey practices with our new, detailed data on costs. We find that two important inputs in the procurement process appear to particularly drive costs: (1) the capacity of the DOT procuring the project and (2) the lack of competition in the market for government construction contracts. |
| JEL: | D44 H54 H57 H83 K40 L38 L91 O18 R42 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31705&r=com |
| By: | Solórzano Diego |
| Abstract: | Using data gathered through web scraping techniques, this paper characterizes product categories' frequency, size and dispersion of price changes in eight retail chains in Mexico, and compare them with price statistics stemming from brick and mortar stores data of the same retailers. Notably, between 2016 and 2019, prices observed in brick and mortar stores (offline) change more frequently than those observed on websites (online). However, given a price change, online prices tend to exhibit larger price changes than their offline counterparts. In 2020, period affected by the pandemic, the above relationship across sales channel holds, while the frequency of price changes increased roughly by the same magnitude in both sales channels and the average size of price adjustments did not change relative to previous years. Results from this paper highlight the importance of recognizing the differences between survey and web scraped data. |
| Keywords: | Nominal rigidities;Consumer prices;Web scraped data;Survey microdata |
| JEL: | E31 L16 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2023-09&r=com |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper considers an international mixed duopoly model in which a state-owned public firm competes against a foreign labor-managed firm. The paper investigates endogenous roles of the firms by adopting the observable delay game and shows that the state-owned public firm should never play the role of Staclkelberg leader. |
| Keywords: | Endogenous timing; Foreign labor-managed firm; International mixed duopoly; Stackelberg |
| JEL: | C72 D21 F23 L30 |
| Date: | 2023–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118561&r=com |
| By: | Hamid Firooz |
| Abstract: | What are the pro-competitive consequences of trade in frictional labor markets? This paper develops and estimates a dynamic general equilibrium trade model to show that the interplay between endogenously variable markups in product markets and frictions in labor markets has important implications for aggregate as well as distributional consequences of trade. In particular, I show that once markups are allowed to respond to trade liberalization, unemployment and residual wage inequality rise almost three times more than in a model with constant markups (in the steady state). The presence of labor market frictions makes the pro-competitive gains from trade liberalization negative. |
| Keywords: | international trade, variable markups, pro-competitive gains, labor elasticity of revenue, unemployment, residual wage inequality, firm size distribution |
| JEL: | F12 F16 E24 J64 L11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10649&r=com |