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on Industrial Competition |
| By: | Langinier, Corinne (University of Alberta, Department of Economics); Ray Chaudhuri, Amrita (University of Winnipeg) |
| Abstract: | When the antitrust authority has imperfect information about firms' costs, we show that all firms (including firms not participating in a merger) can influence the antitrust authority's merger decision by manipulating pre-merger quantities. As long as the antitrust authority engages in Bayesian updating, we find that there exists a clear relationship between the level of synergy generated by a given merger and the type of error in the merger decision that is more likely to occur. The larger the level of merger-induced synergy, the greater the likelihood of a Type II error whereby a consumer surplus-decreasing merger is allowed. The smaller the level of synergy, the greater the likelihood of a Type I error whereby a consumer surplus increasing merger is rejected. |
| Keywords: | Horizontal mergers; Asymmetric information; Competition policy; Cournot competition |
| JEL: | L13 L40 L41 |
| Date: | 2024–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:ris:albaec:2024_009 |
| By: | OECD |
| Abstract: | In an increasingly globalised and digitised world economy, the number of mergers transactions that impact more than one country has also increased. For competition authorities responsible for reviewing merger transactions, this has created new challenges and introduced more complexity to their merger review procedures and analyses. This paper surveys these challenges, explains the reasons why competition authorities may arrive at different decisions, and discusses the role that international co-operation plays in each phase of a cross-border merger review. Drawing from a range of case studies across both OECD and non-OECD member countries, the paper highlights practical tools competition authorities can use to improve the effectiveness of their cross-border mergers. |
| Date: | 2024–10–25 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:314-en |
| By: | Sanxi Li; Jun Yu; Mingsheng Zhang |
| Abstract: | Search prominence may have a detrimental impact on a firm's profits in the presence of costly product returns. We analyze the impact of search prominence on firm profitability in a duopoly search model, considering the presence of costly product returns. Consumer match values are assumed to be independently and identically distributed across the two products. Our results show that the non-prominent firm benefits from facing consumers with relatively low match values for the prominent firm's products, thus avoiding costly returns. When return costs are sufficiently high, the prominent firm may earn lower profits than its non-prominent competitor. This outcome holds under both price exogeneity and price competition. Furthermore, the profitability advantage of prominence diminishes as return costs increase. Platforms that maximize ad revenue should consider retaining positive return cost for consumers rather than fully passing it on to firms. For e-commerce platforms, it is crucial to align product return policies with broader management objectives to optimize firm profitability. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.06791 |
| By: | Fabio Bertolotti; Andrea Lanteri; Alessandro Villa |
| Abstract: | We develop a model of capital accumulation in an economy that imports investment goods from large firms with market power. We model investment-goods producers as a dynamic oligopoly and characterize the equilibrium with a Generalized Euler Equation. We use this characterization to analyze the evolution of investment and prices. The markup on investment goods acts as an endogenous adjustment cost, which decreases as the economy grows. We calibrate the model to simulate the post-2020 shocks to demand for semiconductors. The model attributes the equipment-price increase mainly to increasing marginal costs. Finally, we analyze policy interventions to address market power. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:98999 |
| By: | Kessing, Sebastian |
| JEL: | H41 D60 Q54 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302336 |
| By: | Reimer, Julia |
| JEL: | L42 D42 D43 D82 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302444 |
| By: | OECD |
| Abstract: | This paper explores the role of competition and regulation in shaping the outcomes and consumer experiences of the care industry (early childhood care and long-term care). Both services are vital to economic and social well-being, particularly in light of demographic change and the cross-cutting implications for other aspects of the economy, such as women’s participation in the labour market. This paper analyses how competition and regulation can drive quality and market outcomes, whilst addressing market failures and equity concerns within the industry, to arrive at a conclusion on the role competition authorities can play. |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:315-en |
| By: | C. Lanier Benkard; Przemyslaw Jeziorski; Gabriel Weintraub |
| Abstract: | This paper presents a new approach to modeling transitional dynamics in dynamic models of imperfect competition, a crucial yet often neglected aspect of empirical models in industrial organization that seek to understand market responses to policy and environmental changes. We introduce Nonstationary Oblivious Equilibrium (NOE), a computationally efficient equilibrium concept based on a mean-field approximation designed to model short- and medium-run market dynamics. Addressing potential limitations of NOE in more concentrated markets or under aggregate shocks, we propose a variant, NOE with Re-solving (RNOE). RNOE modifies firms' strategies by re-computing NOE as industry states get realized; an iterative process inspired by real-world industry practice that has behavioral appeal. We show the potential of NOE and RNOE by applying them to an empirical setting of technology adoption and to two classic dynamic oligopoly models, demonstrating that, in a wide variety of settings of empirical interest, they generate equilibrium behavior that is close to Markov perfect equilibrium in both the short and long runs. |
| JEL: | D43 L0 L13 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33045 |
| By: | Zachary Bethune; Joaquín Saldain; Eric R. Young |
| Abstract: | We investigate the welfare consequences of consumer credit regulation in a dynamic, heterogeneous-agent model with endogenous lender market power. We incorporate a decentralized credit market with search and incomplete information frictions into an off-the-shelf Eaton–Gersovitz model of consumer credit and default. Lenders post credit offers and borrowers apply for credit. Some borrowers are informed and direct their application toward the lowest offers while others are uninformed and apply randomly. Equilibrium features price dispersion — controlling for a borrower’s default risk, both high- and low-cost lending exist. Importantly, the distribution of loan prices and the extent of lenders’ market power are disciplined by borrowers’ outside options. We calibrate the model to match characteristics of the unsecured consumer credit market, including high-cost options such as payday loans. We use the calibrated model to evaluate interest rate ceilings. In a model with a competitive financial market, ceilings can only harm borrower welfare. In contrast, with lender market power, interest rate ceilings can raise borrower welfare by reducing markups, but that requires households to have some degree of financial illiteracy (lack of information about interest rates). |
| Keywords: | Interest rates; Credit and credit aggregates; Financial markets |
| JEL: | D15 D43 D60 D83 E21 G51 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-36 |
| By: | Luis Aguiar; Joel Waldfogel; Axel Zeijen |
| Abstract: | Digitization has facilitated the emergence of large distribution platforms downstream from traditionally powerful suppliers. Digital platforms can carry many suppliers’ products, test the products’ consumer appeal, and choose which products to promote, potentially shifting power from the suppliers to the platforms. We study these forces in the recorded music industry, which was traditionally dominated by a few “major” record labels distributing their products through fragmented radio stations and retailers. Now, the majors receive most of their promotion and distribution through platforms like Spotify, which carry millions of songs from both major and “independent” suppliers. We study Spotify’s use of playlists using data covering 2017-2020. First, Spotify used their expanded playlist capacity to test – and discover – proportionately more independent songs to promote on their playlists. Second, at least relative to major-label playlists, Spotify-operated playlists promoted new independent songs more than was indicated by their subsequent success. Third, placement on Spotify new-music playlists has a large causal impact on streams. The independent-label share of new-music promotion rose from 38 percent in late 2017 to 55 percent in early 2020, which helps to explain the reported decline in the share of Spotify royalty payments to major-label suppliers over the same period. |
| JEL: | L13 L82 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33048 |
| By: | Lenhard, Severin |
| JEL: | D41 C43 K21 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302361 |
| By: | Lucas Gomes; Jannis Kueck; Mara Mattes; Martin Spindler; Alexey Zaytsev |
| Abstract: | Collusion is a complex phenomenon in which companies secretly collaborate to engage in fraudulent practices. This paper presents an innovative methodology for detecting and predicting collusion patterns in different national markets using neural networks (NNs) and graph neural networks (GNNs). GNNs are particularly well suited to this task because they can exploit the inherent network structures present in collusion and many other economic problems. Our approach consists of two phases: In Phase I, we develop and train models on individual market datasets from Japan, the United States, two regions in Switzerland, Italy, and Brazil, focusing on predicting collusion in single markets. In Phase II, we extend the models' applicability through zero-shot learning, employing a transfer learning approach that can detect collusion in markets in which training data is unavailable. This phase also incorporates out-of-distribution (OOD) generalization to evaluate the models' performance on unseen datasets from other countries and regions. In our empirical study, we show that GNNs outperform NNs in detecting complex collusive patterns. This research contributes to the ongoing discourse on preventing collusion and optimizing detection methodologies, providing valuable guidance on the use of NNs and GNNs in economic applications to enhance market fairness and economic welfare. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.07091 |
| By: | DUCH BROWN Nestor (European Commission – JRC); BROOCKS Annette (European Commission – JRC); GOMEZ LOSADA Alvaro (European Commission – JRC) |
| Abstract: | Digital markets have the potential to be more segmented than traditional markets due to their unique characteristics. Among others, digital platforms enable businesses to reach customers worldwide, allowing for targeting specific niche markets and catering to diverse consumer preferences. Large online and hybrid retailers do segment markets by allowing only shipment to the countries at which their national interfaces are directed. This segmentation is in some cases used to apply different prices that go beyond adjustment to national VAT levels, or to sell country-specific versions of specific products. Moreover, sizes of product catalogues may vary significantly across countries. In this paper, we provide evidence about the potential effects of these practices in terms of availability and price differences. We carry out an analysis to identify and web-scrape the biggest pure e-commerce first-party traders implementing these segmenting practices at the EU level, which run during the second half of 2021 and the first half of 2022. We analyse a number of pure online retailers regarding cross-country differences in catalogue composition and prices. The main results of the exercise indicate that there is a high variability in terms of availability of products with respect to a hypothetical EU-wide catalogue by each of the traders analysed in this exercise. The results also indicate a high variability in terms of the bilateral similarity of catalogues. Finally, we show that the average price differences in relative terms (percentages) can be as large as 10%. However, not many robust conclusions about price differences can be made since the exercise required to perform very different web scraping strategies given the characteristics of the different websites of traders considered. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:decwpa:202402 |
| By: | Comola, Margherita (Paris School of Economics); Rusinowska, Agnieszka (Paris School of Economics); Villeval, Marie Claire (CNRS, GATE) |
| Abstract: | We experimentally investigate how players with opposing views compete for influence through strategic targeting in networks. We varied the network structure, the relative influence of the opponent, and the heterogeneity of the nodes' initial opinions. Although most players adopted a best-response strategy based on their relative influence, we also observed behaviors deviating from this strategy, such as the tendency to target central nodes and avoid nodes targeted by the opponent. Targeting is also affected by affinity and opposition biases, the strength of which depends on the distribution of initial opinions. |
| Keywords: | network, influence, targeting, competition, laboratory experiment |
| JEL: | C91 D85 D91 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17315 |
| By: | Zhu Mingxi; Song Michelle |
| Abstract: | Bidding is a key element of search advertising, but the variation in bidders' valuations and strategies is often overlooked. Disclosing bid information helps uncover this heterogeneity and enables platforms to tailor their disclosure policies to meet objectives like increasing consumer surplus or platform revenue. We analyzed data from a platform that provided bid recommendations based on historical bids. Our findings reveal that advertisers vary significantly in their strategies: some follow the platform's recommendations, while others create their own bids, deviating from the provided information. This highlights the need for customized information disclosure policies in online ad marketplaces. We developed an equilibrium model for Generalized Second Price (GSP) auctions, showing that adhering to bid recommendations with positive probability is suboptimal. We categorized advertisers as bid-adhering or bid-constructing and developed a structural model for self-bidding to identify private valuations. This model allowed for a counterfactual analysis of the impact of different levels of information disclosure. Both theoretical and empirical results suggest that moderate increases in disclosure improve platform revenue and market efficiency. Understanding bidder diversity is crucial for platforms, which can design more effective disclosure policies to address varying bidder needs and achieve their goals through costless information sharing. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.05535 |
| By: | Overman, Henry G.; Xu, Xiaowei |
| Abstract: | We consider disparities across local labour markets in Great Britain. Disparities in wages and employment rates are large and persistent, although smaller than 20 years ago. These disparities largely reflect the concentration of high-skilled workers, who would have better labour market outcomes wherever they live. This concentration is driven by differences in the demand for, and supply of, skills and the self-reinforcing interaction between the two, which is particularly pronounced in the highest-wage areas and at the upper end of the wage distribution. The highest-paid jobs are concentrated in London and a handful of other areas and wage disparities are mostly driven by the higher-paid. Places that offer higher earnings also have higher rents, which may entirely offset gains in earnings. Consistent with this, people in higher-paid places are no happier than those in lower-paid places. |
| Keywords: | spatial inequality; place; labour market |
| JEL: | R14 J01 J1 |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:121453 |
| By: | Langinier, Corinne (University of Alberta, Department of Economics); Ray Chaudhuri, Amrita (University of Winnipeg) |
| Abstract: | We analyze the impact of patent policies and emission taxes on green innovation. We allow for strategic interactions of firms in a duopolistic market in the presence of green conscious consumers. We identify a paradoxical effect of increasing emission taxes beyond a certain threshold which results in an increase in emissions. Decreasing patenting costs mitigates this paradox, while the impact of tightening patentability requirements is more complex. Moreover, we show that the greater the proportion of green-conscious consumers, the less likely firms are to license a green patent, which results in higher emissions levels. With green consumers, the lowest emissions occur for an intermediate range of taxes for which licensing does occur. Finally, we find that while tax increases lead to a switch from overinvestment to underinvestment in the absence of green conscious consumers, they have the reverse effect in their presence. |
| Keywords: | Patent; Green Innovation; Pollution |
| JEL: | L13 O34 Q50 |
| Date: | 2024–10–10 |
| URL: | https://d.repec.org/n?u=RePEc:ris:albaec:2024_007 |
| By: | Panle Jia Barwick; Myrto Kalouptsidi; Nahim B. Zahur |
| Abstract: | Industrial policy has been used throughout history in some form or other by most countries. Yet, it remains one of the most contentious issues among policymakers and economists alike. In part, this is because the empirical evidence on whether and how it should be implemented remains slim. Scant data on government subsidies, conflicting theoretical arguments, and the need to account for governments’ short and long-run objectives, render research particularly challenging. In this article, we outline a theory-based empirical methodology that relies on estimating an industry equilibrium model to measure hidden subsidies, assess their welfare consequences for the domestic and global economy, as well as evaluate the effectiveness of different policy designs. We illustrate this approach using the global shipbuilding industry as a prototypical example of an industry targeted by industrial policy, especially in periods of heavy industrialization. Just in the past century, Europe, followed by Japan, then South Korea, and more recently China, developed national shipbuilding programs to propel their firms to global leaders. Success has been mixed across programs, certainly by welfare metrics, and sometimes even by growth metrics. We use our methodology on China to dissect the impact of such programs, what made them more or less successful, and how we can justify why governments have chosen shipbuilding as a target. |
| JEL: | L50 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33043 |