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on Industrial Competition |
| By: | Shanglyu Deng; Dun Jia; Mario Leccese; Andrew Sweeting |
| Abstract: | Industries with significant scale economies or learning-by-doing may come to be dominated by a single firm. Economists have studied how likely this is to happen, and whether it is efficient, using models where buyers are price or quantity takers, even though these industries are often also characterized by buyer-seller negotiations. We extend the dynamic “learning-by-doing and forgetting” model of Besanko, Doraszelski, Kryukov, and Satterthwaite (2010) to allow for Nash-in-Nash bargaining over prices. Price-taking and the social planner solution are captured as special cases. We show that sellers’ dynamic incentives, market concentration and welfare can change sharply, and non-monotonically, as one moves away from the price-taking assumption. We study the implications of buyer bargaining power for the existence of multiple equilibria, the design of subsidy policies and the welfare effects of policies designed to increase competition. |
| JEL: | C73 D21 D43 L13 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32360&r=com |
| By: | Carl-Christian Groh,; Jonas von Wangenheim |
| Abstract: | We study the competitive effects of personalized pricing in horizontally differentiated markets with search frictions. We integrate the possibility of first degree price discrimination into the classic Wolinsky (1986) framework of consumer search. If all consumers are rational, personalized pricing leads to higher consumer surplus if and only if there are no search frictions. If all consumers are unaware that firms price discriminate, i.e. are naive as in Eyster and Rabin (2005), this result is reversed: Personalized pricing improves consumer surplus unless search costs are prohibitive. |
| Keywords: | search, price discrimination, welfare, bounded rationality, anonymity |
| JEL: | D21 D43 D83 D90 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_527&r=com |
| By: | Koji Ishibashi (Department of Economics, Keio University) |
| Abstract: | This paper explores how firms respond in designing two-part tariffs to consumers' biased beliefs about their preferences. Biased consumers could be either overpessimistic when they underestimate their true demand or overoptimistic when they overestimate. Assuming that unbiased consumers consist of two types with high and low valuations, I show that the effect of the presence of biased consumers on unbiased consumers depends on market structure. The monopolist wants to educate overpessimistic consumers while may not want to educate overoptimistic consumers. Alternatively, in competition, firms do not have the incentive to educate any biased consumers. A debiasing policy for either overpessimistic or overoptimistic consumers unambiguously improves social welfare in competition but could harm social welfare in monopoly. |
| Keywords: | biased belief, overoptimistic consumers, overpessimistic consumers, two-part tariff |
| JEL: | D42 D43 D91 L12 L13 |
| Date: | 2024–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2024-009&r=com |
| By: | Giacomo Calzolari; Leonardo Felli; Johannes Koenen; Giancarlo Spagnolo; Konrad Stahl |
| Abstract: | Using data from a unique survey on all buyers and crtical suppliers in German automotive production, we explore the role of trust in long-term procurement relationships. Higher trust leads to higher quality of the automotive parts, and to more competition among suppliers. These effects are significant for low-tech parts only, and not for high tech ones, even when the buyer procures parts from the same supplier. We rationalize these unexpected findings within a relational contracting model, where technology-specific differences in the cost of switching suppliers determine the bargaining power in part-specific procurement relationships. |
| Keywords: | Relational Contracts, Hold-up, Buyer-Supplier Contracts, Bargaining Power |
| JEL: | D86 L14 L62 O34 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_530&r=com |
| By: | KIKUCHI Shinnosuke |
| Abstract: | I document trends of concentration in national and local markets in Japan since 1980. First, national market concentration within industries or product categories has increased since the mid-1990s regardless of sectors, data sources, or measurements. This is consistent with the findings in other developed countries, including the US. Second, local market concentration has also increased since the late 1990s, which contrasts with the findings in the US that local market concentration has been decreasing recently. The increase in local market concentration is associated with the decline in the number of establishments and is concentrated in areas outside large cities. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24049&r=com |
| By: | Axelle Arquie (CEPII); Malte Thie (CEPII and Université Paris Dauphine) |
| Abstract: | We explore how, in the French manufacturing sector, producer prices vary with market power during a severe episode of energy price hikes (between January 2020 and February 2023). Our work provides some empirical evidence in favor of a role for firms' market power in explaining inflation, and in favor of the "sellers' inflation" hypothesis (Weber and Wasner (2023)): in less competitive sectors, firms could use the energy price hike to increase their prices more than warranted by actual changes in costs. Using a rich dataset on French manufacturing firms' balance sheets, we first estimate markups at the firm-level, and aggregate them at the sectoral level. We then study the response of the producer price index (PPI) to a change in spot energy prices, depending on average market power within sectors. We show that, in sectors with higher markups, prices increase relatively more: in the least competitive sector, firms pass through up to 110% of the energy shock, implying an excess pass-through of 10 percentage points. In addition, we find that the association between markup and pass-through is even higher when markup dispersion is low, consistent with the argument that firms engage in price hikes when they expect their competitors to do the same. |
| Keywords: | Inflation, Markups |
| JEL: | E31 F4 L11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:220-2023&r=com |
| By: | Paul Koh |
| Abstract: | Standard empirical tools for merger analysis assume price data, which may not be readily available. This paper characterizes sufficient conditions for identifying the unilateral effects of mergers without price data. I show that revenues, margins, and revenue diversion ratios are sufficient for identifying the gross upward pricing pressure indices, impact on consumer/producer surplus, and compensating marginal cost reductions associated with a merger. I also describe assumptions on demand that facilitate the identification of revenue diversion ratios and merger simulations. I use the proposed framework to evaluate the Staples/Office Depot merger (2016). |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.07684&r=com |
| By: | Matteo Bizzarri (University of Naples Federico II and CSEF.); Fernando Vega-Redondo (Bocconi University and BIDSA.) |
| Abstract: | We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network. In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common shareholders. While in a horizontal economy the common-ownership effects on equilibrium prices depend on firm markups alone, in the more general case displaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative question of what are the welfare implications of affecting the ownership structure, we show that, if costs of adjusting it are large, the optimal intervention is proportional to the Bonacich centrality of each firm in the weighted network quantifying interfirm price-mediated externalities. Finally, we also explain that the parameters of the model can be identified from typically available data, hence rendering our model amenable to empirical analysis. |
| Keywords: | production networks, network games, common ownership, oligopoly. |
| JEL: | D43 D57 D85 L13 L16 |
| Date: | 2024–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:707&r=com |
| By: | Kei Kawai; Jun Nakabayashi |
| Abstract: | We study the effectiveness of firms' compliance programs by conducting a field experiment in which we disclose to a subset of Japanese firms that the firm is potentially engaging in illegal bid-rigging. We find that the information that we disclose affects the bidding behavior of the treated firms: our test of bid-rigging is less able to reject the null of competition when applied to the bidding data of the treated firms after the intervention. We find evidence that this change is not the result of firms ceasing to collude, however. We find evidence suggesting that firms continue to collude even after our intervention and that the change in the bidding behavior we document is the result of active concealment of evidence by cartelizing firms. |
| JEL: | K21 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32347&r=com |
| By: | Andrea Batch; Benjamin R. Bridgman; Abe C. Dunn; Mahsa Gholizadeh (Bureau of Economic Analysis) |
| Abstract: | Local area data are important to many economic questions, but most local area data are reported using political units, such as counties, which often do not match economic units, such as product markets. Commuting zones (CZs) group counties into local labor markets. However, CZs are not the most appropriate grouping for other economic activities. We introduce consumption zones (ConZs), groupings of counties appropriate for the analysis of household consumption. We apply the CZ methodology to payment card data, which report spending flows across U.S. counties for 15 retail and service industries. We find that different industries have different market sizes. Grocery stores have more than five times the number of ConZs as live entertainment. Industries with more frequent purchases are more local than those with infrequent purchases. We apply ConZs to measuring industry concentration. ConZs give lower concentration levels than counties, with the largest gap for infrequent purchase industries. The difference is economically important. Some industries are below the antitrust enforcement thresholds with ConZs but above them for counties. We further demonstrate the importance of ConZs by analyzing the proposed merger of Albertsons and Kroger. |
| JEL: | R12 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0114&r=com |
| By: | Patrick Rey; Yossi Spiegel; Konrad Stahl |
| Abstract: | We study the feasibility and profitability of predtion in a dynamic environment, using a parsimonious infinite-horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to accommodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies, accounting for the possibility that recurrent predtion may be welfare improving. |
| Keywords: | predation, accommodation, entry, legal rules, Markov perfect equilibrium |
| JEL: | D43 L41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_529&r=com |
| By: | Kaufmann, Mattheo |
| Abstract: | Mergers and acquisitions (M&As) are one of the major ways through which corporate assets change owners. This reallocation mechanism represents an important instrument to ensure the efficient use of assets and the associated post-merger integration process often implies drastic changes not only for employees, customers and suppliers, but also for competitors and the overall industry structure. The potential gains or losses can be material in size for the involved parties, and as such considerable research has been devoted to advance our understanding of transactions. Nevertheless, research gaps remain, for example with respect to the impact of major corporate events such as initial public offerings (IPOs) or security class action lawsuits (SCAs) on M&A transactions as well as regarding the implications of acquisitions for the competitive dynamics within a given industry. This dissertation consists of three distinct studies aiming to contribute to existing research gaps in the field of M&As. The first study examines the role of financial sponsors—i.e., private equity (PE) and venture capital (VC) investors—in the context of the acquisition activity of their portfolio firms once these firms went public. In particular, it focuses on the question whether financial sponsors promote or moderate the acquisition activity of their portfolio company after going public, a research question previously unaddressed. My findings suggest that PE-backed newly public firms engage in almost three times as many acquisitions as VC-backed newly public firms and that they achieve superior long-run post-IPO stock returns when doing so. The second study investigates the impact of corporate innovation on M&As. Specifically, the study seeks to understand the competitive dynamics that are at play when large technology conglomerates acquire innovative assets and the ramifications these acquisitions have for rival firms within the same industry. It shows that innovative acquirers are able to outbid non-innovative acquirers for innovative target firms and that innovative acquirer rivals react to these transactions by increasing both their R&D spending and their likelihood to acquire a technology target firm in the years after the competitor's M&A announcement. The third study explores M&A transactions in the context of security class action lawsuits (SCAs). Particularly, it analyzes to what extent bidders are able to capitalize on acquiring target firms that are subject to ongoing litigation. The study provides evidence that SCAs significantly reduce takeover premiums, but acquirers who purchase SCA-affected targets nevertheless experience significantly more negative announcement returns than acquirers of non-SCA affected ones. In the long-run, however, acquirers of SCA-affected targets are able to recoup some of their losses, particularly if the SCA is later dismissed. |
| Date: | 2024–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:144589&r=com |
| By: | Wallis, Patrick |
| Abstract: | Records of long-eighteenth-century English wage rates exhibit almost absolute nominal rigidity over many decades, alongside significant dispersion between the wages paid by different organizations for the same type of work in the same location. These features of preindustrial wages have been obscured by data aggregation and the construction of real wage series, which introduce variation. In this paper, we argue that the standard explanations for wage rigidity in economic history are insufficient. We show econometric evidence for monopsony power in one major organization and argue that the main historical wage series are also affected by employer power. Eighteenth-century England had an imperfectly competitive labour market with large frictions. This gave large organizations the power to set wage policies. We discuss the implications for the eighteenth-century British economy and research into long-run wages more generally. |
| Keywords: | real wages; construction; eighteenth-century England; industrial revolution; labour markets; monopsony; wages |
| JEL: | J31 J41 K12 N33 N63 N83 J21 J22 J23 |
| Date: | 2024–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121599&r=com |
| By: | Francesc Dilme (Department of Economics, University of Bonn) |
| Abstract: | This paper studies repeated trade with noisy information about previous transactions. A buyer has private informa- tion about his willingness to pay, which is either low or high, and buys goods from different sellers over time. Each seller observes a noisy history of signals about the buyer’s previous purchases and sets a price. We compare the cases where previous prices are observable to sellers with the case where they are not. We show that more signal precision is counterbalanced by two equilibrium mechanisms that slow learning and keep incentives in balance: (1) sellers offer discounted prices more often, and (2) the buyer rejects high prices with a higher probability. The effect of making prices observable depends on the signal precision: When the signal is imprecise, making prices public strengthens the discounting mechanism, improving efficiency and buyer welfare; when the signal is precise, making prices public activates the rejection mechanism, and efficiency and buyer welfare may decrease. Independently of the price observability, the buyer tends to benefit from a more precise signal about previous purchases. |
| Keywords: | Repeated trade, asymmetric information, internet cookies |
| JEL: | C73 C78 D82 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:296&r=com |
| By: | Simonetta Vezzoso |
| Abstract: | The Digital Markets Act (DMA) aims to ensure contestability and fairness in digital markets, particularly focusing on regulating Big Tech companies. The paper explores the DMA's capacity to address both current and future challenges in digital market contestability and fairness, spotlighting the trend towards platform integration and the potential rise of "super-apps" akin to WeChat and KakaoTalk. Specifically, it investigates WhatsApp, owned by Meta, as a gatekeeper that might expand its service offerings, integrating additional functionalities like AI and metaverse technologies. The paper discusses whether the DMA's obligations, such as mandated interoperability and data portability, can mitigate the emergent risks to market fairness and contestability from such integrations. Despite recognizing that the DMA has the potential to address many issues arising from platform integration, it suggests the necessity for adaptability and a complementary relationship with traditional antitrust law to ensure sustained contestability and fairness in evolving digital markets. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.04506&r=com |
| By: | Jihwan Do; Lining Han; Xiaoxi Li |
| Abstract: | This paper studies a stylized model of a monopoly data seller when information-sharing network exists among data buyers. We show that, if the buyers' prior information is sufficiently noisy, the optimal selling strategy is characterized by a maximum independent set, which is the largest set of buyers who do not have information-sharing link at all. In addition, the precision of the seller's data decreases in the number of information-sharing links among buyers, but it is higher than the socially efficient level of precision. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.05546&r=com |
| By: | Hernández, Carlos Eduardo; Cantillo-Cleves, Santiago |
| Keywords: | Economics, Applied Economics, Econometrics, Price controls, Price floors, Intermediation, Market power, Incidence, Transportation, Economic Theory, Applied economics, Economic theory |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsdec:qt0209r817&r=com |
| By: | Ying-Ju Chen; Zhengqing Gui; Ernst-Ludwig von Thadden; Xiaojian Zhao |
| Abstract: | A central problem in supply chains is to coordinate the mismatch between supply and demand along the chain. This paper studies a problem of contracting between a manufacturer and a retailer who privately observes the retail demand materialized after the contracting stage. Under quite general assumptions, we show that the optimal contract must be either a wholesale contract or a buyback contract, depending on the retailer's ex-ante liquidity and bargaining power. In a buyback contract, the manufacturer requests an upfront payment from the retailer and buys back the unsold inventory at a previously agreed price. Depending on downstream liquidity and bargaining power this price may be constant or demand-dependent. Since return shipments are inefficient, retail supply and price will be lower than the first-best level. The optimal contracts are robust to several extensions including multiple retailers. |
| Keywords: | Supply chains, informational frictions, buyback contracts, incentive compatibility, limited liability, ironing |
| JEL: | D82 D86 L42 L60 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_528&r=com |
| By: | Alonso Alfaro-Urena; Paolo Zacchia |
| Abstract: | This paper develops a framework for the empirical analysis of the determinants of input supplier choice on the extensive margin using firm-to-firm transaction data. Building on a theoretical model of production network formation, we characterize the assumptions that enable a transformation of the multinomial logit likelihood function from which the seller fixed effects, which encode the seller marginal costs, vanish. This transformation conditions, for each subnetwork restricted to one supplier industry, on the out-degree of sellers (a sufficient statistic for the seller fixed effect) and the in-degree of buyers (which is pinned down by technology and by “make-or-buy” decisions). This approach delivers a consistent estimator for the effect of dyadic explanatory variables, which in our model are interpreted as matching frictions, on the supplier choice probability. The estimator is easy to implement and in Monte Carlo simulations it outperforms alternatives based on group fixed effects. In an empirical application about the effect of a major Costa Rican infrastructural project on firm-to-firm connections, our approach yields estimates typically much smaller in magnitude than those from naive multinomial logit. |
| Keywords: | Production network, Supplier choice, Conditional logit, Infrastructures |
| JEL: | C25 L11 R12 R15 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp775&r=com |