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on Industrial Competition |
| By: | Cho, Sung Ick |
| Abstract: | Platform mergers differ significantly from traditional mergers. In platform mergers, foreclosure issues, which are crucial in traditional vertical mergers, carry less significance but may still arise indirectly. Platforms, moreover, can favor their own businesses potentially disadvantaging competitors, and leverage their market power to new businesses. Lastly, entry barriers could increase as a result of platforms' multi-service provisions. Nevertheless, platforms can enhance consumer welfare, especially through product (service) bundling. Thus, we need to overhaul the merger review system to incorporate the aforementioned characteristics of platform mergers. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kdifoc:120&r=com |
| By: | Dirk Bergemann (Yale University); Benjamin Brooks (University of Chicago); Stephen Morris (Massachusetts Institute of Technology) |
| Abstract: | A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either consumers are uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumers may intensify competition in a way that benefits consumers but results in inefficient production. |
| Date: | 2023–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2373&r=com |
| By: | Bethany Carter; Ignacio Loeser; Maria Jose Lopez; Martin de Dios; Mariana del Rio |
| Abstract: | This report, conducted by a group of Master of Public Administration (MPA) students at the London School of Economics and Political Science, seeks to inform the UK Competition and Markets Authority (CMA) on how it should assess innovation in its investigations of potential mergers and acquisitions. From our analysis, we propose four policy recommendations aimed at validating the CMA's changing approach towards innovation and improving its performance through more efficient use of its scarce human resources. |
| Keywords: | Innovation, competition policy, CMA, diffusion |
| Date: | 2023–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:066&r=com |
| By: | Basile Grassi; Giovanni Morzenti; Maarten de Ridder |
| Abstract: | Is it feasible to estimate firm-level markups with commonly available datasets? Common methods to measure markups hinge on a production function estimation, but most datasets do not contain data on the quantity that firms produce. We use a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data to study the biases in markup estimates that may arise as a result. While the level of markup estimates from revenue data is biased, these estimates do correlate highly with true markups. They also display similar correlations with variables such as profitability and market share in our data. Finally, we show that imposing a Cobb-Douglas production function or simplifying the production function estimation may reduce the informativeness of markup estimates. |
| Keywords: | Macroeconomics, Production Functions, Markups, Competition |
| Date: | 2022–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:063&r=com |
| By: | Christos Genakos; Andreas Lamprinidis; James Walker |
| Abstract: | This paper proposes a new algorithm with which to identify the potential effect of mergers by comparing the outcomes of interest in areas of overlap for the merging parties vis-? -vis areas of no overlap within a difference-in-differences estimation framework. Utilizing our proposed algorithm enables researchers and policymakers to perform retrospective merger evaluation studies that look at the effects of mergers on both price and non-price aspects. We demonstrate the applicability and value of our proposed methodology by examining the effects on price and product variety of four mergers of the late 1980s and the 1990s on the U.K. car market. |
| Keywords: | mergers, ex post policy evaluation, automobile industry |
| Date: | 2023–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:072&r=com |
| By: | David Autor; Christina Patterson; John Van Reenen |
| Abstract: | National U.S. industrial concentration rose between 1992-2017. Simultaneously, the Herfindahl Index of local (six-digit-NAICS by county) employment concentration fell. This divergence between national and local employment concentration is due to structural transformation. Both sales and employment concentration rose within industry-by-county cells. But activity shifted from concentrated Manufacturing towards relatively unconcentrated Services. A stronger between-sector shift in employment relative to sales explains the fall in local employment concentration. Had sectoral employment shares remained at their 1992 levels, average local employment concentration would have risen by 9% by 2017 rather than falling by 7%. JEL: L11, L60, O31, O34, P33, R3 |
| Keywords: | Employment concentration, sales concentration, local labor markets, structural transformation |
| Date: | 2023–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:069_updated&r=com |
| By: | David Autor; Arindrajit Dube; Annie McGrew |
| Abstract: | Labor market tightness following the height of the Covid-19 pandemic led to an unexpected compression in the US wage distribution that reflects, in part, an increase in labor market competition. Rapid relative wage growth at the bottom of the distribution reduced the college wage premium and counteracted approximately one-quarter of the four-decade increase in aggregate 90-10 log wage inequality. Wage compression was accompanied by rapid nominal wage growth and rising job-to-job separations - especially among young non-college (high school or less) workers. At the state-level, post-pandemic labor market tightness became strongly predictive of price increases (price-Phillips curve), real wage growth among low-wage workers (wage-Phillips curve), and aggregate wage compression. Simultaneously, the wage-separation elasticity - a key measure of labor market competition - rose among young non-college workers, with wage gains concentrated among workers who changed employers and industries. Seen through the lens of a canonical job ladder model, the pandemic increased the elasticity of labor supply to firms in the low-wage labor market, reducing employer market power and spurring rapid relative wage growth among young non-college workers who disproportionately moved from lower-paying to higher paying and potentially more-productive jobs. |
| Keywords: | compression, competition, low wage, labor market |
| Date: | 2023–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:076&r=com |
| By: | Nikhil Datta |
| Abstract: | The estimation of labour supply elasticities is central to the measurement of monopsony power in the labor market. In this paper I provide new, firm-level estimates of the labour supply elasticity that distinguish between a recruitment elasticity (for potential new workers) and a separation elasticity (as relevant to incumbents). My study uses comprehensive HR data for a large multi-establishment firm in the UK. This setting allows me to develop job-establishment level variation in wages derived from both a government wage floor policy which only effects my firm under study and arbitrary variation in advertised wages resulting from idiosyncratic HR department decisions. My estimates show that, in contrast to common assumptions, the recruitment elasticity is almost double the size of the separation elasticity. Heterogeneity analysis is suggestive that differences in wage-saliency for job seekers versus incumbents is likely a factor in this difference. Combined the elasticities give a labour supply elasticity to the firm of 4.6 implying a wage markdown of 18% from the marginal product of labour. I find no evidence of spillovers from wage changes to the local market despite establishments being relatively large, indicating a monopsonistic wage setting framework is more suitable than an oligopsonistic one. |
| Keywords: | monopsony, recruitment elasticity, separation elasticity, markdown, market power |
| Date: | 2023–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1930&r=com |
| By: | Raux, Morgan (University of Luxembourg) |
| Abstract: | This paper estimates the causal effect of recruitment competition on the labor demand for high-skilled foreign workers. I assemble a new data set, combining a firm-level panel of all Labor Condition Applications (LCAs) submitted as a first step to obtaining H-1B visas between 2010 and 2019 with online job vacancies and data on venture capital (VC) investments. I use plausibly quasi-exogeneous variation in VC investments in start-ups to instrument yearly changes in recruitment competition at the local labor market level. I find that a one standard deviation increase in the number of job postings advertised by start-ups yields an 8 percent increase in the number of LCAs submitted by employers in the market and a 3 percent increase in the wages advertised in these LCAs. Estimates are only significant for computer occupations. These results support the role of labor market tightness in explaining the absence of the crowding-out effect from H-1B workers against close native substitutes. |
| Keywords: | labor market tightness, skilled workers, H-1B |
| JEL: | F22 J23 J61 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16554&r=com |
| By: | Ragnhild Balsvik; Doireann Fitzgerald; Stephanie Haller |
| Abstract: | Multinational affiliates are more productive than domestic firms, so how do they affect a host country through the labor market? We use data for Norway to show that the labor market is characterized by a job ladder, with multinationals on the upper rungs. We calibrate a general equilibrium job ladder model with endogenous multinational entry to the Norwegian data. In a counterfactual where multinationals face an infinite entry cost, payments to labor fall and profits of domestic firms rise, but the impact is heterogeneous. Competition for workers increases low down on the job ladder, while it decreases high up. |
| Keywords: | Job ladder; Multinationals; Labor market |
| JEL: | F66 F23 J63 J64 E24 |
| Date: | 2023–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:97205&r=com |
| By: | Céline Bonnet (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Zohra Bouamra-Mechemache (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Hugo Molina (AgroParisTech) |
| Abstract: | We develop a bilateral oligopoly framework with manufacturer-retailer bargaining to analyze the impact of retail mergers on market outcomes. We show that the surplus division between manufacturers and retailers depends on three bargaining forces and can be interpreted in terms of "equilibrium of fear". We estimate our framework in the French soft drink industry and find that retailers have a higher bargaining power than manufacturers. Using counterfactual simulations, we highlight that retail mergers increase retailers' fear of disagreement which weakens their bargaining power vis-à-vis soft drink manufacturers and leads to higher wholesale and retail prices. |
| Keywords: | Bilateral oligopoly, Bargaining, Retail mergers, Soft drink industry |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03375907&r=com |
| By: | Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Paris-Lyon is the busiest High-Speed Line in Europe and has been open to open access competition since 18 December 2021. The purpose of this article is to explore the first effects on the price and frequency of competition between the Italian company Trenitalia and the French incumbent SNCF. The analysis is based on a large database (n = 971) collected from September 2019 to July 2022. The main challenge is to isolate the COVID-19 pandemic effect from the competition. A similar route without competition (Paris-Bordeaux) was selected to control the effects. The method relies on a descriptive analysis with an original dynamic timetable approach in the discussion. The results highlight an increase of frequency by 5% and a decrease in price by 10%. The prices charged by the newcomer are lower than those of the incumbent (-30% to -40%) though without enough volume to change the global equilibrium. Although far from a big bang, the comparison with the control route suggests a positive effect on price that moderates the economic catch-up effect following the COVID-19 pandemic in an inflationary context. More specifically, SNCF appears relatively insensitive to competitive pressure from Trenitalia. It has not significantly changed its price since the new offer was introduced and has maintained its trains. |
| Keywords: | Open-access competition, price, frequency, France, regulation, railroads, Working Papers du LAET |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03770508&r=com |
| By: | Laurent Guihéry (MATRiS - Mobilité, Aménagement, Transports, Risques et Société - Cerema - Centre d'Etudes et d'Expertise sur les Risques, l'Environnement, la Mobilité et l'Aménagement - CY - CY Cergy Paris Université, CY - CY Cergy Paris Université) |
| Abstract: | In its 2011 white paper, European transport policy recommends strengthening the dynamics of competition in passenger rail transport in the E.U. Since December 18, 2021, Trenitalia has been serving Lyon and Paris in open access as an extension of the Milan - Turin - Lyon - Paris line. For the moment, the offer concerns three round trips per day between Milan and Paris (five beginning of June). Offices and ticket vending machines have been installed in the Lyon and Paris stations. This is a revolution in France, a country that is one of the last in Europe to implement, slowly and cautiously, the recommendations of the European Union. Our paper will focus on the start-up of this service by attempting to evaluate the first six months of operation. |
| Keywords: | European Transport Policy, Railway Transport, Open access, SNCF, Trenitalia, Competition |
| Date: | 2022–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-04086144&r=com |
| By: | Maarten de Ridder |
| Abstract: | This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs - such as software - can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and U.S. micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since themid-1990s. |
| Keywords: | Productivity, Growth, Business Dynamism, Intangible Inputs, Market Power |
| Date: | 2022–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:064&r=com |
| By: | Jai Vipra; Anton Korinek |
| Abstract: | We analyze the structure of the market for foundation models, i.e., large AI models such as those that power ChatGPT and that are adaptable to downstream uses, and we examine the implications for competition policy and regulation. We observe that the most capable models will have a tendency towards natural monopoly and may have potentially vast markets. This calls for a two-pronged regulatory response: (i) Antitrust authorities need to ensure the contestability of the market by tackling strategic behavior, in particular by ensuring that monopolies do not propagate vertically to downstream uses, and (ii) given the diminished potential for market discipline, there is a role for regulators to ensure that the most capable models meet sufficient quality standards (including safety, privacy, non-discrimination, reliability and interoperability standards) to maximally contribute to social welfare. Regulators should also ensure a level regulatory playing field between AI and non-AI applications in all sectors of the economy. For models that are behind the frontier, we expect competition to be quite intense, implying a more limited role for competition policy, although a role for regulation remains. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.01550&r=com |
| By: | Lydia Dimitrakopoulou; Christos Genakos; Themistoklis Kampouris; Stella Papadokonstantaki |
| Abstract: | We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand. |
| Keywords: | VAT rates, Greek islands, gasoline, competitive markets, monopoly |
| Date: | 2023–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:poidwp:078&r=com |
| By: | Shixin Wang |
| Abstract: | We study a robust selling problem where a seller attempts to sell one item to a buyer but is uncertain about the buyer's valuation distribution. Existing literature indicates that robust mechanism design provides a stronger theoretical guarantee than robust deterministic pricing. Meanwhile, the superior performance of robust mechanism design comes at the expense of implementation complexity given that the seller offers a menu with an infinite number of options, each coupled with a lottery and a payment for the buyer's selection. In view of this, the primary focus of our research is to find simple selling mechanisms that can effectively hedge against market ambiguity. We show that a selling mechanism with a small menu size (or limited randomization across a finite number of prices) is already capable of deriving significant benefits achieved by the optimal robust mechanism with infinite options. In particular, we develop a general framework to study the robust selling mechanism problem where the seller only offers a finite number of options in the menu. Then we propose a tractable reformulation that addresses a variety of ambiguity sets of the buyer's valuation distribution. Our formulation further enables us to characterize the optimal selling mechanisms and the corresponding competitive ratio for different menu sizes and various ambiguity sets, including support, mean, and quantile information. In light of the closed-form competitive ratios associated with different menu sizes, we provide managerial implications that incorporating a modest menu size already yields a competitive ratio comparable to the optimal robust mechanism with infinite options, which establishes a favorable trade-off between theoretical performance and implementation simplicity. Remarkably, a menu size of merely two can significantly enhance the competitive ratio, compared to the deterministic pricing scheme. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.17392&r=com |
| By: | Han, Joseph |
| Abstract: | In the expanding landscape of the platform economy, the rapid rise in the number of platform workers underscores a critical issue: the need for social protection for those not covered by conventional labor laws. Recognizing the transformative impact and significant societal value of the platform economy, it becomes essential to rethink the legal classification of platform workers, moving beyond the traditional "employee" versus "business owner" dichotomy. This paper argues that while platform workers might exhibit similar work patterns, the protection they receive should be proportionate to the labor monopsony power exerted by the platforms they associate with. A harmonized approach that aligns labor and competition policies is crucial to address these challenges. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kdifoc:124&r=com |
| By: | Cajal-Grossi, Julia; MacChiavello, Rocco; Noguera, Guillermo |
| Abstract: | We study differences in markups earned by Bangladeshi garment exporters across buyers with different sourcing strategies and make three contributions. First, we distinguish buyers with a relational versus a spot sourcing strategy and show that a buyer's sourcing strategy is correlated across products and origins. Buyer fixed effects explain most of the variation in sourcing strategies, suggesting that these depend on organizational capabilities. Second, we use novel data that match quantities and prices of the two main variable inputs in the production of garments (fabric and labor on sewing lines) to specific export orders. We derive conditions under which these data allow measurement of within exporter-product-time differences in markups across orders produced for different buyers. Third, we show that exporters earn higher markups on otherwise identical orders produced for relational, as opposed to spot, buyers. A sourcing model with imperfect contract enforcement, idiosyncratic shocks to exporters, and buyers that adopt different sourcing strategies trading off higher prices and reliable supply rationalizes this and other observed facts in the industry. We discuss alternative explanations and policy implications. |
| Keywords: | Sharing Gains (Grant agreement ID 818767). |
| JEL: | J50 J1 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120547&r=com |
| By: | Bursztyn, Leonardo; Handel, Benjamin R.; Jiménez Durán, Rafael; Roth, Christopher |
| Abstract: | Individuals might experience negative utility from not consuming a popular product. For example, being inactive on social media can lead to social exclusion or not owning luxury brands can be associated with having a low social status. We show that, in the presence of such spillovers to non-users, standard measures that take aggregate consumption as given fail to appropriately capture welfare. We propose a new methodology to measure welfare that accounts for these consumption spillovers, which we apply to estimate the consumer surplus of two popular social media platforms, TikTok and Instagram. In large-scale, incentivized experiments with college students, we show that, while the standard welfare measure suggests a large and positive surplus, our measure accounting for consumption spillovers indicates a negative surplus, with a large share of active users deriving negative utility. We also shed light on the drivers of consumption spillovers to non-users in the case of social media and show that, in this setting, the "fear of missing out" plays an important role. Our framework and estimates highlight the possibility of product market traps, where large shares of consumers are trapped in an inefficient equilibrium and would prefer the product not to exist. |
| JEL: | D62 D91 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cbscwp:279570&r=com |