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on Industrial Competition |
| By: | Silva, Jose I.; Okabe, Tomohito; Urzay, Sergi |
| Abstract: | This study examines the relationship between firms’ market power, captured by product markups and labor markdowns, and the labor share within European firms. Using firm-level data from the CompNet database, we develop a microeconomic framework linking the labor share to firms’ market power. Empirical results show that labor markdowns reduce the labor share, while product markups have a hump-shaped effect on it. Specifically, moderate increases in product markups initially lead to a rise in the labor share. However, as markups reach higher levels, firms with significant pricing power increasingly exercise monopsony power over their workers, amplifying markdowns and suppressing labor costs. Additionally, the analysis uncovers substantial cross-country heterogeneity in the relationship between markups, markdowns, and the labor share. |
| Keywords: | product markup, labor markdown, firms’ labor share. |
| JEL: | D21 D22 J31 L12 |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123442 |
| By: | Alex Chernoff; Allen Head; Beverly Lapham |
| Abstract: | We study the determination of market power at the firm and industry levels when heterogeneous firms compete for sales to ex ante homogeneous buyers in a market with both directed and random search and free entry of firms that differ in productivity. Search and the distribution of productivity across active firms generate distributions of equilibrium prices and markups that we relate to variation in the elasticity of demand at the firm level. With directed search at the outset, a shock that raises the matching rate for buyers improves conditions for them and tends to lower markups. Random matching follows sequentially, and the same shock can lower the productivity threshold for operation, pushing up prices and markups for all firms. The net effect on market power can be ambiguous depending on the forces driving matching rates. The distributions of prices and markups respond in equilibrium to changes in common and firm-specific costs, consumption utility, and fixed costs of both entry and operation. We characterize the differential pass-through of these changes to prices and markups at both the firm and market levels. |
| Keywords: | Inflation and prices; Service sector |
| JEL: | D21 D43 E31 L11 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-7 |
| By: | Khan, Abhimanyu; Pradhan, Sheersh |
| Abstract: | Empirical studies on the effect of internet on market prices report that market prices have not always reduced in response to increased competition that is induced by the easily and relatively costlessly available market information. In this paper, we provide an explanation for why prices of all goods may not reduce, and in fact, price of some goods may even increase in presence of more market information. Market information not only induces stiffer competition amongst sellers but also makes for better matches between consumers and producers. While the former feature has a tendency to reduce prices, the latter feature may in fact cause prices to rise. The direction in which prices change as more information becomes available depends on the balance of these forces. We analyse this in context of a differentiated market, and characterise how prices change in response to freely available market information. |
| Keywords: | price competition, product match, information, differentiated market |
| JEL: | D43 L13 |
| Date: | 2025–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123522 |
| By: | Winston Wei Dou; Shane A. Johnson; Wei Wu |
| Abstract: | Using local natural disasters as a quasi-experimental setting, we show that heightened distress risk in shocked firms drives both these firms and their unshocked competitors to cut profit margins by about 0.8 percentage points. These reductions stem from predatory pricing, inventory liquidation, and weakened tacit collusion in product markets. Distress propagates horizontally as unshocked competitors rationally respond almost 1-for-1 with profit-margin cuts, significantly increasing their distress risk. Spillovers are more pronounced in tradable industries or those with higher barriers to leadership, larger inventories, greater price flexibility, or tighter financial constraints, revealing a novel channel for distress propagation across the economy. |
| JEL: | G32 G33 L11 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33463 |
| By: | Jackie M.L. Chan; Michael Irlacher; Michael Koch; Luca Macedoni |
| Abstract: | This paper reveals a new determinant of wage markdowns at the firm level, namely, the product scope. Using matched employer-employee data on Danish manufacturing firms, we document a negative elasticity between wages and firm scope, which is of a similar magnitude but opposite sign as the firm-size wage premium. We rationalize the wage discount using a theory where workers value the opportunity to switch product lines as an amenity. Multiproduct firms exercise their monopsony power to offer lower wages. Our findings have important implications for understanding labor market dynamics in times of rising concentration from the contribution of large multiproduct firms. |
| Keywords: | multiproduct firms, monopsony power, wages, amenities, labor share |
| JEL: | J31 J42 L25 D21 F10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11674 |
| By: | Clara Calini (Italian Competition Authority - AGCM); Alessandra Catenazzo (Italian Competition Authority - AGCM); Elisabetta Iossa (CEIS & DEF, University of Rome "Tor Vergata" and AGCM) |
| Abstract: | Well-functioning competitive procurement is essential to reach efficiency of public services and public spending. Drawing from the experience of the Autorit`a Garante della Concorrenza e del Mercato, this paper argues that fostering competition in public procurement is most effective when employing a diverse range of tools. First, identifying the functioning of compensatory mechanisms that result in anomalous bidding behaviour, as well as diversifying the sources of information, is important for effectively prosecuting bid rigging ex post and helping contracting authorities detect anticompetitive conduct. Second, ex ante advocacy contributes to enhance the competence of public buyers, helping them design pro-competitive procurement processes. Third, adopting legality rating systems incentivizes compliance with competition law and also helps select the most efficient bidder. The paper makes these points whilst reviewing enforcement practice. |
| Keywords: | Antitrust, Advocacy, Bid rigging, Legality Rating, Public Procurement |
| JEL: | D44 D73 H57 K4 L4 |
| Date: | 2025–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:594 |
| By: | Stefan P. Penczynski (School of Economics and Centre for Behavioural and Experimental Social Science, University of East Anglia); Christian Koch (Department of Economics, University of Vienna); Sihong Zhang (McKinsey & Company, Inc.) |
| Abstract: | This study investigates experimentally information disclosure in settings with and without seller competition. Sellers often choose to report information selec-tively and buyers account for this—even though not fully—by bidding skeptically. As expected, competition increases sellers’ information disclosure but leads, sur-prisingly and replicably, to more buyer na¨ıvety, offsetting the welfare benefits from improved disclosure. A framing effect generates this result: merely describing a situation as competitive rather than monopolistic alters buyer behavior. Akin to the so-called Peltzman effect, buyers seemingly perceive competition as a safer en-vironment to which they behaviorally adapt by abandoning their skepticism. Con-sequently, consumer benefits hinge on perceived competitiveness—a vulnerability firms may leverage to their advantage. |
| Keywords: | Disclosure, verifiable information, competition, Peltzman effect |
| JEL: | D40 D83 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:uea:wcbess:25-01 |
| By: | Rhodes, Andrew; Zhou, Jidong; Zhou, Junjie |
| Abstract: | This paper provides a framework in which a multiproduct ecosystem competes with many single-product firms in both price and innovation. The ecosystem is able to use data collected on one product to improve the quality of its other products. We study the impact of data regulation which either restricts the ecosystem’s cross-product data usage, or which requires it to share data with small firms. Each policy induces small firms to innovate more and set higher prices; it also dampens data spillovers within the ecosystem, reduces the ecosystem’s incentive to collect data and innovate, and potentially increases its prices. As a result, data regulation has an ambiguous impact on consumers, and is more likely to benefit consumers when small firms are relatively more efficient in innovation. A data cooperative among small firms, which helps them to share data with each other, does not necessarily benefit small firms and can even harm consumers. |
| Keywords: | digital ecosystems; innovation; data regulation; data cooperative |
| JEL: | D43 L13 L51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130354 |
| By: | Alexander Guschanski; Özlem Onaran |
| Abstract: | We analyse UK markups and profit margins for the pandemic period and its aftermath using unconsolidated balance sheets of non-financial corporations for both listed and unlisted firms. The markup increases by 14.7% between 2014 and 2022, exceeding any previously documented growth rate for UK markups, despite major economic, ecological and geo-political crises. The rise in markups is driven by both increasing markups within UK companies and a reallocation of output towards high-markup firms. However, the within effect has dominated since 2020, driven by large firms. In this regard, the UK is different from the US, where the reallocation effect has been more prominent. Since 2014, the markup distribution of firms has become more polarised. Increasingly more firms are at risk of financial difficulties due to low profit margins while at the same time some firms are charging historically extraordinarily high markups and reap high profits. This contributes to bankruptcy risk and economic instability while exacerbating pricing power for some companies. Preventing markup increases during macroeconomic shocks should be a priority for policymakers seeking to reduce inflationary pressure and adverse effects on income inequality. |
| Keywords: | markup, profit margin, market power |
| JEL: | D4 J3 L1 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:imk:fmmpap:113-2025 |
| By: | Maryam Farboodi; Nima Haghpanah; Ali Shourideh |
| Abstract: | We ask when additional data collection by a monopolist to engage in price discrimination monotonically increases or decreases weighted surplus. To answer this question, we develop a model to study endogenous market segmentation subject to residual uncertainty. We give a complete characterization of when data collection is good or bad for surplus, which consists of a reduction of the problem to one with only two demand curves, and a condition for the two-demand-curves case that highlights three distinct effects of information on welfare. These results provide insights into when data collection and usage for price discrimination should be allowed. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.03641 |
| By: | Cariolle, Joël; Houngbonon, Georges Vivien; Silue, Tarna Abdoul Hamid; Strusani, Davide |
| Abstract: | Submarine cables enable international connectivity and are essential for high-speed internet access. This paper tests their potential to improve the affordability of internet access by supporting a price drop through cost savings or increased competition intensity. The empirical framework relies on a dataset that combines the capacity of submarine cables with price data on fixed and mobile internet across 150 countries over a decade. Using a two-way fixed effects estimator, the analysis finds that the expansion of submarine cables is associated with a statistically significant drop in the price of internet access, up to 14–21 percent, depending on the technology, for every doubling of the capacity of submarine cables, and with large regional disparities. These effects stem from cost savings in the short run and tend to decline over time, concomitant with a rise in domestic telecom market concentration. The analysis also finds that these effects can be enhanced by telecom regulations, especially de-jure independence of the regulator, and the regulation of network interconnection and access, shared telecom infrastructure, and competition from international players across the broadband value chain. The main findings are robust to alternative estimation strategies, including an instrumental variable and a staggered difference in differences. |
| Date: | 2024–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10840 |
| By: | Tzanaki, Anna |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:311856 |
| By: | Dasol Kim; Luke M. Olson; Toan Phan |
| Abstract: | This paper studies how banks adjust their risk models and lending in response to the emergent risk of climate change following Hurricane Harvey (Working Paper no. 24-03). |
| Keywords: | Banks, climate risk, real estate, natural disasters, competition, moral hazard |
| Date: | 2024–06–21 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:wpaper:24-03 |
| By: | Poltoratskaia, Viktoriia; Quintero, Maria Fernanda; Fazekas, Mihaly; Marc Tobias Schiffbauer |
| Abstract: | Although green public procurement has been established as a desirable policy goal across the globe, especially in the European Union, its scope and impacts remain severely understudied. This paper provides insights into the prevalence and structure of green public procurement in Bulgaria, which is a sustainability laggard within the European Union and hence a least likely champion of green public procurement. The paper also estimates the impacts of green procurement on traditional procurement and economic outcomes: competition, corruption risks, and overall productivity. Using novel data and more comprehensive methods than previous studies, the analysis finds that green public procurement amounted to about 10 to 20 percent of total public procurement spending in Bulgaria in 2011–19. Most descriptors and requirements of green public procurement are found in titles, technical requirements, and product descriptions. Green criteria in award criteria texts, which are mainly used for flagging green public procurement in the literature, have been marginal in comparison. Green public procurement is estimated to improve competition for government contracts among firms, for example by increasing the prevalence of market entrants by 3 to 7 percentage points. Green public procurement contracts are also less prone to corruption risks. For example, they are 0.6 to 1.5 percentage points less likely to receive a single bidder. Finally, green public procurement enhances the efficiency of resource allocation in the economy by helping to channel public resources to more productive firms, for example to those that have 14 percent higher labor productivity. This effect is at least in part explained by the positive interaction between green public procurement and the lower risk of corruption. The findings strengthen the case for pursuing green public procurement goals as they offer synergies with traditional public procurement goals. |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10987 |
| By: | Wichmann, Julian R.K. (Tilburg University, School of Economics and Management); Edeling, Alexander; Himme, Alexander; Sklenarz, Felix Anton |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:8cd948b0-9b8c-4585-83ae-f06dfb33cc05 |
| By: | Grégroire Massé (Université Paris 1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne) |
| Abstract: | The French notary profession has been transformed over the last ten years, leading to increased competition. However, regulatory indicators that initiated this process did not change. In other words, indicators have promoted and directly inspired regulatory changes that they fail to quantify. This paper questions the reasons for this failure by revisiting the methodology behind the indicators of professional regulation. It interrogates their double aim of quantifying regulation and giving insights for policymaking. Both lie in a representation of regulation on a competition continuum. Thus, the indicators can be interpreted equally as indicators of both regulation and deregulation. Challenging their positive dimension (regulation), we show that, in fact, they do not quantify professional regulation itself, but rather measure the distance from an ideal model in a "flat" world. Analysing their normative dimension (deregulation), we show that they often contradict the policies they are used to justify. These indicators can only promote complete deregulation or a one-size-fits-all model. Finally, we advocate for developing indicators more suitable for both economic analysis and policymaking, by adopting a more "legal markets-based" methodology for constructing indicators |
| Keywords: | Regulation Indexes (Regulatory Indicators); Legal Services (notaries); Professional competition; Comparative Law and Economics; Optimal regulation |
| JEL: | J44 L51 D45 K23 |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:mse:cesdoc:24004r |