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on Industrial Competition |
| By: | Lefouili, Yassine; Madio, Leonardo |
| Abstract: | In this paper, we review recent studies on the impact of mergers on investments. First, we examine how mergers among competing incumbents influence firms' incentives to develop new products and undertake cost-reducing or quality-enhancing investments. Second, we analyze how an incumbent's acquisition of an innovative entrant affects the investment incentives of both parties. Third, we discuss the effects of vertical mergers on the investment decisions of both upstream and downstream firms. Finally, we outline a few directions for future research. |
| Keywords: | Competition; Investments; Innovation; Mergers, Entry |
| JEL: | D43 L13 L40 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130332 |
| By: | Ayoze Alfageme |
| Abstract: | This paper establishes a connection between non-financial corporate mergers and acquisitions (M&A) and the rise of large firms, decline productive investment, concentration of markets and profits, and rising markups. First, using Refinitiv M&A deals data, I briefly recount the history of corporate M&A deal making in the last four decades in which this study focuses (1980-2020), with special attention to its sector dynamics. Second, the paper presents a literature review highlighting the gap for the type of study presented here, in terms of both methods and time scope. An articulation of the process from which M&A are linked to the new corporate environment is presented in the form of 6 hypothesis. Third, using Compustat firm-level data I present stylised evidence poiting towards the potential validation of those 6 hypothesis. I found that M&A has become an important corporate growth strategy (hypothesis 1). A steeper drop in capital expenditure among firms with the highest acquisition spending points to scrapping capex for M&A (hypothesis 2). Fed’s flow of funds data suggests corporate funds are redirected to the household sector for M&A payments, potentially depleting corporate funds. A micro-macro tension arises (hypothesis 3), where individual firms grow larger in total assets through M&A to achieve corporate growth goals, while their capex declines, dampening aggregate corporate investment. M&A is also connected to the rise in market concentration (hypothesis 4) and the accumulation of intangibles that create barriers to entry (hypothesis 5). Finally, firms with the most acquisitions, account for 40% of total profits and have higher markups (hypothesis 6). In a period where efforts are aimed at curbing M&A deals, these findings highlight the implications of leaving the M&A market unrestricted. |
| Keywords: | Mergers and Acquisitions, Market Concentration, Corporate Investment, Firm Growth |
| JEL: | D22 G34 L11 L40 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2505 |
| By: | Justin C. Wiltshire (Department of Economics, University of Victoria) |
| Abstract: | This paper considers the extent and impact of monopsony power exercised by Walmart Supercenters. I address the issue of potential bias from endogenous store entry, as well as other identification concerns, by adopting a stacked synthetic control approach to estimate average county-level labor market effects of the Walmart Supercenter roll-out across the U.S. Crucially, I construct the pools of synthetic control donor counties from novel observations of counties where Walmart tried to open a Supercenter but was blocked by local efforts. I first show Supercenter entry sharply increased labor market concentration. Supercenters were able to hire large numbers of retail workers with zero increase in average earnings, indicating Walmart had wage-setting power. I then show Supercenter entry caused large declines in overall local employment and earnings, particularly among local goods-producers, indicating Walmart displaced manufacturing demand away from local producers and to its own national and international suppliers. In counties with a Supercenter, subsequent exogenous minimum wage increases led to significant growth in aggregate and retail employment. These results run counter to predictions for competitive labor markets, and indicate Walmart Supercenters gradually accumulated and exercised monopsony power, with negative consequences for workers. |
| Keywords: | Walmart, monopsony, wage income, job loss, local labor markets |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:vic:vicddp:2304 |
| By: | Francesco Del Prato (Aarhus University [Aarhus]); Marc Fleurbaey (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We develop a theoretical framework analyzing responsible firms (REFs) that prioritize worker welfare alongside profits in labor markets with search frictions. At the micro level, REFs' use of market power varies with labor conditions: they refrain from using it in slack markets but may exercise it in tight markets without harming workers. Our macro analysis shows these firms offer higher wages, creating a distinct high-wage sector. When firms endogenously choose worker bargaining power, there is a trade-off between worker surplus and employment, though this improves with elastic labor supply. While REFs cannot survive with free entry, they can coexist with profit-maximizing firms under limited competition, where their presence forces ordinary firms to raise wages. |
| Keywords: | Corporate social responsibility, Search model, Labor market, Monopsony power |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04788058 |
| By: | Shigeo Morita (Fukuoka University); Yukihiro Nishimura (Osaka University and CESifo); Hirofumi Okoshi (Okayama University) |
| Abstract: | As development of online market brings ongoing concerns that foreign app suppliers avoid value-added tax (VAT) in a domestic country, some countries design a tax reform which makes platform pay VAT instead of app suppliers (platform taxation). In the market where the monopoly platformer determines the prices of the network good and the commission fee of the platform services (with online apps as a representative example), this study investigates whether the prevention of tax leaks by platform tax improves the welfare of the host country, as well as the extent of the cross-market incidence of the two-sided market. We find that the tax reform reduces foreign app suppliers and consumption of a network good such as smartphones, with substantial extent of cross-market pass-through. The effect of the tax reform on home app suppliers crucially depends on the responsiveness of the app supplies from the number of users, which we call entry elasticity. Platform tax also increases the tax burden laid on the network product, but the monopoly seller let the increase of the tax burden born entirely by consumers. We also show that digitalization reduces the loss of welfare as well as tax planning by the platformer. |
| Keywords: | Value-added tax; Tax reform; Digital economy; Platform; Network externality |
| JEL: | F23 H26 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2502r |
| By: | Hunt Allcott; Juan Camilo Castillo; Matthew Gentzkow; Leon Musolff; Tobias Salz |
| Abstract: | We evaluate the economic forces that contribute to Google’s large market share in web search. We develop a model of search engine demand in which consumer choices are influenced by switching costs, quality beliefs, and inattention, and estimate it using a field experiment with US desktop internet users. We find that (i) requiring Google users to make an active choice among search engines increases Bing’s market share by only 1.1 percentage points, implying that switching costs play a limited role; (ii) Google users who accept our payment to try Bing for two weeks update positively about its relative quality, with 33 percent preferring to continue using it; and (iii) after changing the default from Google to Bing, many users do not switch back, consistent with persistent inattention. In our model, correcting beliefs and removing choice frictions would increase Bing’s market share by 15 percentage points and increase consumer surplus by $6 per consumer-year. Policies that expose users to alternative search engines lower Google’s market share more than those requiring active choice. We then use Microsoft search logs to assess the impact of additional data on search result relevance. The results suggest that sharing Google’s click-and-query data with Microsoft may have a limited effect on market shares. |
| JEL: | L4 L86 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33410 |
| By: | Andrea Bassanini (OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Cyprien Batut (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Eve Caroli (Legos - Laboratoire d'Economie et de Gestion des Organisations de Santé - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We investigate the impact of labor market concentration on stayers' wages, where stayers are defined as individuals who remain employed in the same firm for at least two consecutive years. Using administrative data for France, we show that the elasticity of stayers' wages to labor market concentration is negative but small (about -0.014) once controlling for firm productivity, product market competition and match-specific heterogeneity. Given the strong wage rigidities characterizing the French labor market, this estimate can be seen as a lower bound of the effect of labor market concentration on stayers' wages in an international perspective. |
| Keywords: | DT LEDa-LEGOS, Labor market concentration, Monopsony, Wages, Stayers, Match-specific heterogeneity |
| Date: | 2023–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:hal-04244671 |
| By: | Giammario Impullitti; Pontus Rendahl |
| Abstract: | In recent decades, the United States has experienced a notable rise in markups, a slowdown in productivity growth, and an increase in wealth inequality. We present a framework that unifies these trends into a common driving force. In particular, increased barriers to entry raise markups and boost corporate profits. Rising profits elevates firm valuations, fuels the demand for capital, and drives up asset returns. At the same time, the reduction in competition stifles overall economic growth. Wealth inequality is shaped by the return gap, r - g, which represents the difference between asset returns and the economy's growth rate. The rise in capital demand together with a reduction in growth leads to a widening of the return gap, which amplifies inequality by affecting the saving patterns of households in different ways across the wealth distribution, deepening the divide between the rich and the poor. These trends result in substantial welfare losses for the majority of households, while only the top 1%, and especially the top 0.1%, experience gains. |
| Keywords: | market power, growth, heterogeneous agents, wealth distribution |
| Date: | 2025–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2074 |
| By: | Xie, Haitian; Zhu, Ying; Shishkin, Denis |
| Abstract: | The classic third degree price discrimination (3PD) model requires the knowledge of the distribution of buyer valuations and the covariate to set the price conditioned on the covariate. In terms of generating revenue, the classic result shows that 3PD is at least as good as uniform pricing. What if the seller has to set a price based only on a sample of observations from the underlying distribution? Is it still obvious that the seller should engage in 3PD? This paper sheds light on these fundamental questions. In particular, the comparison of the revenue performance between 3PD and uniform pricing is ambiguous overall when prices are set based on samples. This finding is in the nature of statistical learning under uncertainty: a curse of dimensionality, but also other small sample complications. |
| Keywords: | Economics, Applied Economics, Economic Theory, Applied economics, Economic theory |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:cdl:ucsdec:qt4xt2c4ts |
| By: | Carine Milcent (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | This research paper examines changes in patient care management in acute care hospitals between 2001 and 2011. During this time, there were two opposing factors at play: the competition effect of the reform and the policymaker's decision to reduce public hospitals across France. By studying the trends, it is evident that there has been a significant overall shift in patient care management during this period. This change could be attributed to the global competition effect and the concentration of in-patients in specific public facilities. Through the difference-in-difference method, the study analyzed time variations in the intensity of local competition. It was found that local competition had a negligible impact on patient care management. Additionally, the study revealed that there was a significant positive competition effect on high-technical procedures for the private sector, which is in line with the market segment where private sector hospitals have a leadership position and the pro-competitive reform intensified this position. The study also uncovered a negative competition effect on the length of stay for public hospitals. Prior to the implementation of the DRG-based payment reform, public sector hospitals were paid a global budget. However, after the reform was implemented, they had to shorten the length of stay to increase the number of stays. For-profit hospitals have always been paid based on the number of stays. The results are robust and consistent when alternative measures of local competition are used. |
| Keywords: | Competition, Hospital ownership, Policy evaluation, Length of stay, High-tech procedure, Difference-in-difference, Measure of market structure, Heart attack |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:halshs-04568345 |
| By: | Volker Nocke; Nicolas Schutz |
| Abstract: | We adopt a potential games approach to study multiproduct-firm pricing games where products can be local complements or substitutes. We show that any such game based on an IIA demand system admits an ordinal potential, giving rise to a simple proof of equilibrium existence. We introduce the concept of transformed potential, and characterize the class of demand systems that give rise to multiproduct-firm pricing games admitting such a potential, as well as the associated transformation functions. The resulting demand systems allow for substitutability or complementarity patterns that go beyond IIA, and can resemble those induced by "one-stop shopping" behavior. |
| Keywords: | Multiproduct firms, potential game, oligopoly pricing, IIA demand, complementary goods |
| JEL: | L13 D43 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_644 |
| By: | Francis Bloch (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Philippe Gagnepain (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We study a model of non-cooperative interaction between two infrastructure managers (IMs) for international rail transport. We compare equilibrium access charges when the IMs are unregulated and regulated. We show that cooperation among IMs eliminates double-marginalization to the benefit of passengers and IMs. We also show that the delegation of access charge collection with adequate transfers allows the two IMs to reach efficiency, both in the unregulated and regulated régimes. We study the effect of differences in regulatory policies, and analyze the effect of monopoly power of train operators and competition among high speed and low speed train routes on access charges. |
| Keywords: | International Rail Transport, Access Charges, International Regulation, Infrastructure Managers |
| Date: | 2025–01–14 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04892920 |
| By: | Helena Perrone; Fabricio Valiati |
| Abstract: | This paper studies switching behavior and its determinants in auto-insurance markets using a dataset that includes information on policyholder choices and their consideration sets, including alternative contract prices. We show that disregarding consumers' consideration sets and the price of alternative offers, especially the premium offered by the previous insurance at renewal, leads to an overestimation of choice inertia and an understatement of consumer price responsiveness. We also find that previous claim history is a primary determinant of switching behavior, even after controlling for premium differentials and observed and unobserved characteristics of the contract and insurers. Our empirical evidence is consistent with choice inertia driven by learning about the true quality of the firm's service. |
| Keywords: | insurance, price disperison, switching costs, choice sets |
| JEL: | L4 K2 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_646 |
| By: | Luc Arrondel (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Richard Duhautois (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM]); Jean-François Laslier (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The paper studies a very simple game-theoretical model of sports competition such as the European football leagues. In this oligopoly-type context, the Cournot-Nash equilibrium reveals a paradoxical differentiation between clubs: those that include not only profit but also sporting performance in their objectives end up generating more profit than others who purely maximize profit. |
| Keywords: | Cournot-Nash equilibrium, Oligopoly, Sports economics, Football |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04358491 |