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on Industrial Competition |
| By: | Budzinski, Oliver; Stöhr, Annika |
| Abstract: | The model of perfect competition is one of the most famous, most important, and most misunderstood concepts in economics. Rather than aiming to be a full-blown model of real-world competitive markets, the perfect competition model isolates the decentralized coordination mechanism inherent in all competitive markets. Coordinating supply and demand is not the only feature of market competition, but it plays a central role regarding to its virtues, and understanding the working mechanism of this coordination is valuable for economic thinking and economic theory. However, the implications of the perfect competition model for competition law and policy are limited. Market power is a multifaceted phenomenon that consists of several distinguishable types. This contribution explains absolute market power (single-firm monopoly and dominance), collective market power, relative market power, and systemic market power. Due to the possibility of merit-driven paths to market power positions (especially disruptive innovations), market power is difficult to prohibit - despite its welfare-reducing effects within the affected markets (anticompetitive effects) and in other parts of the economy and society (rent-seeking, lobbying, distributional issues). Therefore, competition policy usually focuses on preventing non-merit paths to market power (merger control) and on combating the (anticompetitive) abuse of market power. Contestability refers to the openness of markets. More specifically, it is the ability of companies to overcome barriers to entry and exit as well as to expansion on markets. While the original economic theory of contestability defines very strict conditions for perfectly contestable markets, antitrust has employed the term contestability in broader and in varying ways, emphasizing the role of potential competition and potential market entries to discipline the behavior of powerful incumbents on monopoly or dominance markets. Recently, contestability is rising to new prominence as a major goal of the European regulation of digital ecosystems. |
| Keywords: | perfect competition, atomistic competition, coordination of supply and demand, market power, monopoly, market concentration, dominance, digital ecosystems, price setting, economic power, contestability, entry barriers, exit barriers, potential competition, open markets, Digital Markets Act (EU) |
| JEL: | A10 A20 B10 B20 D00 K21 L12 L13 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:tuiedp:296473&r= |
| By: | Donna, Javier; Pereira, Pedro |
| Abstract: | We discuss a subset of vertical mergers, where the exercise of market power and the efficiencies enabled by a vertical merger reduce rivals’ profits, making rivals’ exit a potentially serious concern. Rivals’ exit can fundamentally alter the welfare analysis of vertical mergers due to the reduction in product variety to consumers and the reduction in the number of competitors that would otherwise exert downward pricing pressure. An exit-inducing vertical merger might re- duce welfare even if it is a welfare-enhancing merger absent exit. We present a theoretical framework to analyze vertical mergers that focuses on the possibility and consequences of exit, discuss the antitrust implications for merger evaluation, and provide examples. We argue that the possibility of rivals’ exit should be an integral part of the analysis of vertical mergers. |
| Keywords: | Antitrust, Vertical Mergers, Rivals’ Exit, Double Marginalization, Merger Evalu- ation, Competition Policy. |
| JEL: | K21 K41 L42 L44 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:121045&r= |
| By: | Okuyama, Suzuka |
| Abstract: | Existing studies on Behaviour-based price discrimination (BBPD) typically show that firms offer discounts to encourage consumers located middle of the line segment to switch in a duopoly model. However, in practice, some firms offer both this discount and a discount to encourage consumers with lower preferences for the product itself to buy at the same time. I introduce heterogeneity of consumer willingness to pay and relax the assumption that the market is fully covered. Then, there are three purchase histories: bought from a firm, bought from another firm, and bought nothing. I assume that the two firms offer three different prices according to the purchase histories under BBPD. In the second period, firms offer discounts not only for rival customers but also for customers who bought nothing. On the other hand, firms offer higher prices for consumers who purchase the same goods over two periods in the second period than in the first period. This paper shows that BBPD does not lower all prices in the second period and does not increase consumer surplus. |
| Keywords: | Behavior-based price discrimination, Hotelling model. |
| JEL: | D43 L13 |
| Date: | 2024–03–16 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:120949&r= |
| By: | Sánchez, Mariola; Nerja, Adrian |
| Abstract: | In this paper, we compare the scenarios of exclusive licenses and cross-licenses under the existence of partial vertical integration. To do this, a successive duopoly model is proposed, with two owners and two firms competing in a differentiated product market. Each technology owner has a share in one of the competing firms, so that competition is also extended to the upstream R&D sector. We propose a novel analysis where differences in the size of their innovation process are allowed, extending the results in Sánchez et al. (2021). We find that the cross-licensing scenario is preferred when the size of the innovation is small; this occurs regardless of the participation in the competing companies and how many innovate. If the innovation is very large, the owners may be better off with exclusive licenses. |
| Keywords: | Patent Licensing; Exclusive licenses; Market for technology; Asymmetric innovation |
| JEL: | L13 L24 O33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120829&r= |
| By: | Carlo Altomonte; Nevine El-Mallakh; Tommaso Sonno |
| Abstract: | We build a novel worldwide database merging information on patent-citations of firms paired with information on firms' affiliation to Business Groups (BGs). We exploit these data to document how BGs appropriate knowledge through standalone firm acquisition. First, we confirm that innovative standalone firms have a higher probability of becoming part of a BG. Second, we document how BGs tend to acquire firms that are on an upward trend in patents and citations. We also show that innovating activity significantly deteriorates post-acquisition, particularly for firms with high-quality, cited patents. Third, we show that such a deterioration in innovation activity is driven by acquired firms patenting within the same technological classes of the acquiring BG, while the latter does not hold for acquired firms patenting in different technologies than the BG's. We also find that acquisitions occurring in environments characterized by higher market concentration and more mature leading firms are associated with a relatively more pronounced reduction in innovation. These results generalize the defensive acquisition narrative, suggesting that BGs leverage these transactions as a strategic manoeuvre to solidify their market position in the face of potential competition. |
| Keywords: | business groups, innovation |
| Date: | 2024–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1996&r= |
| By: | Pham, Hien |
| Abstract: | A monopolistic seller jointly designs allocation rules and (new) information about a pay-off relevant state to a buyer with private types. When the new information flips the ranking of willingness to pay across types, a screening menu of prices and threshold disclosures is optimal. Conversely, when its impact is marginal, bunching via a single posted price and threshold disclosure is (approximately) optimal. While information design expands the scope for random mechanisms to outperform their deterministic counterparts, its presence leads to an equivalence result regarding sequential versus. static screening. |
| Keywords: | mechanism design, information design, sequential screening, random mechanisms, bunching. |
| JEL: | D42 D82 D86 L15 |
| Date: | 2023–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120989&r= |
| By: | Lisa Bruttel (University of Potsdam, Berlin School of Economics, CEPA); Maximilian Andres (University of Potsdam, Berlin School of Economics, CEPA) |
| Abstract: | While the economic harm of cartels is caused by their price-increasing effect, sanctioning by courts rather targets at the underlying process of firms reaching a price-fixing agreement. This paper provides experimental evidence on the question whether such sanctioning meets the economic target, i.e., whether evidence of a collusive meeting of the firms and of the content of their communication reliably predicts subsequent prices. We find that already the mere mutual agreement to meet predicts a strong increase in prices. Conversely, express distancing from communication completely nullifies its otherwise price-increasing effect. Using machine learning, we show that communication only increases prices if it is very explicit about how the cartel plans to behave. |
| Keywords: | cartel, collusion, communication, machine learning, experiment |
| JEL: | C92 D43 L44 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:pot:cepadp:77&r= |
| By: | Sara Calligaris; Chiara Criscuolo; Luca Marcolin |
| Abstract: | Relying on a novel dataset which combines balance sheet data on firms, patents, and industry-level proxies of technology for 25 countries in the period 2001-2014, we document an increase in mark-ups over time, mainly driven by firms in the top half of the mark-up distribution, and a significant and increasing "mark-up gap" between firms in digital intensive and less digital intensive industries. Second, we show that the intangible components of the digital transformation, matter above all others for firm mark-up, and that this is not explained by the industry's fixed-cost structure, concentration, openness to trade and product market regulation. |
| Keywords: | mark-ups, market power, digitalisation, intangible assets |
| Date: | 2024–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1994&r= |
| By: | Bahl, Utsav |
| Abstract: | Scholars from both sides of the Atlantic have noted a perceived divergence in the objectives and practice of competition policy in the US and the EU. This paper investigates the reasons behind such a divergence focusing on ideology, legal systems, lobbying, and foreign policy. The most compelling reasons behind the differences we see in competition policy across the US and the EU is due to the US’ more laissez-fair approach to the economy and, as a byproduct, its legal system. With a particular emphasis placed on Big Tech, it is noted that differences in competition policy are exacerbated in this industry in large part due to the relative inefficacy of Big Tech to lobby the EU in comparison to their relative success in the US. This paper ends by discussing how foreign policy aims have recently begun to shape competition policy in both the US and the EU and the potential implications this could have going into the future. |
| Date: | 2024–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:6vzqp&r= |
| By: | Rrukaj, Ritvana (School of Economics and Business, Norwegian University of Life Sciences); Steen, Frode (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | Estimating non-linear autoregressive distributed lag models, we establish shortrun cost pass-through in the Swedish retail gasoline market. Our findings reveal a slower correction of disequilibrium error in volume-adjusted prices compared to average pump prices, suggesting that oil companies are more focused on pricing on days and at stations with larger sales. Our results also suggest that earlier studies of pass-through using average prices underestimates the price asymmetry. Exploring heterogeneity in price responses we find that gasoline stations less exposed to local competition impose larger and more prolonged asymmetry on retail gasoline prices. Full-service stations have a higher and more prolonged asymmetry in pricing than automated self-service stations. Despite indicating only roughly three percent rise in consumer prices, this asymmetry accounts for nearly 40% of firms’ gross margins, carrying significant implications for market regulation and business strategies. |
| Keywords: | Gasoline markets; asymmetric short- and long-run cost pass-through; market power; volume-adjusted prices; station heterogeneity; local competition |
| JEL: | C12 C13 F14 L11 L71 |
| Date: | 2024–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:nhheco:2024_008&r= |
| By: | Brummund, Peter (University of Alabama); Makowsky, Michael D. (Clemson University) |
| Abstract: | Participation in social groups ties members to local communities. Employers can capture these benefits as rents when geographically-specific club goods raise the cost of labor mobility. We measure ties to local clubs using the shares of households identifying with a minority religion, enrollment of children in Islamic schools, and membership in secular savings clubs. We identify larger wage markdowns where households have stronger ties to local club goods. Complementarity between labor market concentration and club goods offers an explanation of rising wage markdowns absent increasing concentration, while adding to the difficulty in separating monopsony rents from compensating wage differentials. |
| Keywords: | monopsony, imperfect competition, club goods, religion |
| JEL: | J42 J31 J24 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16999&r= |
| By: | Bukvić, Rajko |
| Abstract: | On the basis of five balance variables in bank balances (total assets, deposits, capital, operating income, and loans), the Hirschman–Herfindahl indices for period 2016–2021 are calculated. The indices values are decomposed by the Bajo and Salas approach, based on the fact that the Hirschman-Herfindahl index is a special case of the Hanna-Kay index. So the impacts of number of banks and dispersion of its market shares are established. Then we classified the concentration changes, depending on relations between the rates of changes of two factors. They were unequal and vary during the years. Among the identified types of changes there was the most frequent decrease of HHI, caused by decrease of inequality of market shares and decrease of number of banks, where the first was greater. Finally, in 2021, the number of banks decreased with an increase in the dispersion of their shares in the three variables, which from a theoretical point of view is a clear condition for the growth of the concentration index. In the case of the remaining two variables, the dispersion of the share was reduced, so that the realized change in the Hirschman–Herfindahl index belonged to the second type. |
| Keywords: | market concentration, banking sector, decomposition of the index Hirschman–Herfindahl, number of banks, dispersion of market shares, types of the concentration degree changes |
| JEL: | C38 G21 L10 L19 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120970&r= |
| By: | Hasan, Amena |
| Abstract: | This research paper examines the recent amalgamation of commercial banks in Bangladesh, focusing on its impact and implications for the banking industry, economy, and stakeholders. The paper explores the reasons behind the increasing trend of bank mergers and acquisitions in Bangladesh, highlights the benefits and challenges associated with such consolidation, and provides recommendations for effective implementation of amalgamation strategies. |
| Keywords: | Banks, Amalgamation, Economy, Central Bank, Stakeholders |
| JEL: | G21 M4 M42 M48 |
| Date: | 2023–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120830&r= |
| By: | Klajdi Hoxha |
| Abstract: | How do consultants price expertise? This paper studies a problem of selling information products (expertise) to a buyer (client) who faces decision-making problem under uncertainty. The client is privately informed about the type of expertise she needs and her willingness to pay (WTP) for additional information. A monopolist seller (consultant) designs and sells information products as Blackwell experiments over the underlying states associated with each client-specific desired expertise. Because there is correlation across states, a client with high WTP may find it profitable to purchase information about a low type's state, whenever correlation is sufficiently high. I find that the consultant can extract full (socially efficient) surplus whenever such (marginal) gains do not exceed the (marginal) costs of buying cheaper, but noisier information. Otherwise, unlike typical results in mechanism design, I find that buyers with low and sufficiently high value for information get no information rents, and only the "middle" types enjoy positive surplus. Common pricing structures observed in practice, like flat/hourly rates or value-based fees, are obtained as optimal contracts if correlation across states is sufficiently high or low, respectively. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.11142&r= |
| By: | Anirban Basu |
| Abstract: | I demonstrate that to achieve dynamic efficiency, the optimal share of total surplus that a social payer should transfer to an innovating industry for a current asset depends on the marginal product of investment and the share of profits invested by the industry on the current asset and not on returns from future innovations. This insight arises from using a dynamic multi-period model of optimal transfers rather than a static two-period model with one optimal transfer, as used in the literature. I delve into the implications for alternative pricing of healthcare innovations - value-based prices using cost-effectiveness analysis, monopoly prices under the social demand curve, and monopoly profit preserving prices under insurance – for surplus appropriation by the innovating industry. I also explore how alternative financing mechanisms used by social payers and the demand uncertainty that innovators face impact this appropriation share. I illustrate these concepts with a substantive example of pricing gene therapy for sickle cell disease in the United States |
| JEL: | I11 I13 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32480&r= |