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on Industrial Competition |
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Issue of 2025–01–13
twenty-one papers chosen by Russell Pittman, United States Department of Justice |
| By: | John Vickers |
| Abstract: | ACE Keynote Lecture, Milan, 16 November 2024 |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1057 |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | A seller can offer an experience good directly to consumers and indirectly through an intermediary. When selling indirectly, the intermediary provides recommendations based on the consumer’s match value and the prices at which the product is sold. The intermediary faces the trade-off between extracting rents from consumers who strongly care about the match value versus providing less informative recommendations but also serving consumers who do not. We analyze the allocative and welfare effects of prohibiting price parity clauses and/or regulating the intermediary’s recommender system. Prohibiting price parity clauses is always welfare decreasing in our model. |
| Keywords: | intermediation, digital platforms, price parity, recommender system, MFN clause, e-commerce |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_595v2 |
| By: | Sayag, Doron; Snir, Avichai; Levy, Daniel |
| Abstract: | We study Israel’s “price rounding regulation” of January 1, 2014, which outlawed non-0-ending prices, forcing retailers to round 9-ending prices, which in many stores comprised 60%+ of all prices. The regulation’s goals were to eliminate (1) the rounding tax—the extra amount consumers paid because of price rounding (which was necessitated by the abolition of low denomination coins), and (2) the inattention tax—the extra amount consumers paid the retailers because of their inattention to the prices’ rightmost digits. Using 4 different datasets, we assess the government’s success in achieving these goals, focusing on fast-moving consumer goods, a category of products strongly affected by the price rounding regulation. We focus on the response of the retailers to the price rounding regulation and find that although the government succeeded in eliminating the rounding tax, the bottom line is that shoppers end up paying more, not less, because of the regulation, underscoring, once again, Friedman’s (1975) warning that policies should be judged by their results, not by their intentions. |
| Keywords: | Price Rounding, Price Rounding Regulation, Regulation, Rounding Tax, Inattention, Inattention Penalty, Round Prices, 9-Ending Prices, Psychological Prices, Just Below Prices, Price Setting, Price Adjustment, Pricing, Inflation |
| JEL: | E31 K00 K20 L11 L40 L51 M30 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:306479 |
| By: | Sebastien Rouillon (Department of Economics, University of Bordeaux) |
| Abstract: | In a context of intense competition for access to the Earth's orbit, we study a model of monopolistic competition in which satellites operators diversify the variety of satellite services. We put this in perspective with the accumulation of in-orbit fragment debris and the risk it poses for the sustainability of orbital activity. Monopolistic competition leads to a sub-optimal outcome, in terms of both the number of satellites in orbit and the range of services offered. We show that monopolistic competition results in excessive orbit congestion, when Earth's orbit carrying capacity is low and/or consumers' preference for diversity is low, and always leads to an insufficient number of satellite services being offered. However, a strong consumers' preference for service diversity, as it increases the market power of satellites operators, can mitigate congestion of the Earth's orbit. |
| Keywords: | Space economics; Orbital debris; Sustainability. |
| JEL: | L1 L9 Q2 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bhw:wpaper:02-2024 |
| By: | Panova, Elena |
| Abstract: | This paper extends reputational cheap-talk model to study the effect of competition in the media on quality of news. We find that competition helps sustaining informative reporting when it covers is-sues on which the follow-up quality assessment is likely to be possible, such as various forecasts. However, it increases the elasticity of demand and thereby creates the incentives to confirm the common priors on controversial issues, such as politics. |
| Keywords: | quality of news; competition; reputational cheap-talk |
| JEL: | L82 L10 D82 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129948 |
| By: | Jo, Karam (Korea Development Institute); Kim, Seula (Pennsylvania State University) |
| Abstract: | We study how frictions in learning others' technology, termed "imperfect technology spillovers, " impact firm innovation strategies and the aggregate economy through changes in innovation composition. We develop an endogenous growth model that generates strategic innovation decisions, where multi-product firms improve their products via own-innovation and enter new product markets through creative destruction under learning frictions. In our model, firms with technological advantages intensify own-innovation as learning frictions enable them to protect their markets from competitors, thereby reducing creative destruction of rivals. This pattern gets more pronounced when competitive pressure increases exogenously. Using U.S. administrative firm-level data, we provide regression results supporting the model predictions. |
| Keywords: | innovation, technology spillover, endogenous growth, competition |
| JEL: | L11 L25 O31 O33 O41 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17581 |
| By: | Mehmet Selman Colak; Abdullah Kazdal; Unal Seven; Muhammed Hasan Yilmaz |
| Abstract: | This paper presents a comprehensive panorama of the markup-setting behavior of Turkish non-financial firms from 2009 to 2022, using firm-level administrative datasets. The markup indicators, constructed following the methodology of De Loecker and Warzynski (2012), reveal an increasing trend in firm markups, particularly after recent inflationary shocks and deterioration in pricing behavior. The analysis indicates that higher markups are driven by large, foreign trade-oriented, and highly leveraged firms when the overall sample period is considered. Additionally, we observe significant sectoral heterogeneity in markup changes, indicating that sector-level factors play a crucial role in markup formation. We also conduct empirical analyses to examine the effect of sectoral competition on firm markups. Although the overall sample does not reveal a conclusive relationship, our estimations for the highinflation period (2020-2022) indicate a statistically significant co-existence between the deterioration of sectoral competition and increasing markups under excessive inflation. Our findings are evaluated with respect to alternative competition and markup definitions as well as certain robustness checks. We try to mitigate the potential endogeneity concerns with coarsened exact matching and instrumental variable analyses. Although the results remain intact under most cases, significance is susceptible to the inclusion of sector-specific trends. Our estimationsfor the high-inflation interval (post-2020)show that the association of market concentration and markups is only relevant for small firms, while the association is higher for firms that have a higher likelihood of receiving state subsidies. Regarding the social externalities, we find that increased markups during inflationary episodes lead to higher investment but lower labor expenses, with a rather limited economic significance. |
| Keywords: | : Firm Markups, Market Concentration, Pricing Behavior, Inflationary Shocks |
| JEL: | E31 D40 C55 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2501 |
| By: | Jan De Loecker (KU Leuven and CEPR.); Catherine Fuss (Economics and Research Department, National Bank of Belgium); Nathan Quiller-Doust (KU Leuven); Leonard Treuren (KU Leuven) |
| Abstract: | We separately observe variable input expenditure and expenditure on fixed inputs in novel firm-level data covering the Belgian manufacturing sector over the last decades. This permits a deeper investigation of two potential drivers of the globally observed widening gap between firms’ revenue and variable input expenditure: technology and market power. Across the board, cost structures have become less reliant on variable input expenditure over time, while expenditure on fixed inputs or overhead costs has increased in prominence. We relate these changes in firms’ cost structures to performance measures and document that markups and gross profit rates increase substantially as the role of variable costs in production diminishes. Profit rates net of fixed input expenditure also increase, but by substantially less than gross profit rates. Our results suggest that technological change can explain a considerable portion of the widening gap between revenue and variable input expenditure, but that markups increase by more than necessary to break even, and that this phenomenon operates remarkably similarly across different firms and industries |
| Keywords: | Intermediate goods and services; Fixed cost; Markups; Technology. |
| JEL: | D2 D4 L1 O14 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-469 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | When faced with budget-constrained bidders, all-pay auctions revenue-dominate standard auctions (first and second-price), which, in a competitive market, gives an edge to the all-pay format. An equilibrium in which sellers compete with standard auctions fails to exist if the all-pay format is available. Assuming the budget is not severely limited, in the unique symmetric equilibrium sellers compete with all-pay auctions. |
| Keywords: | All-pay Auctions, Budget Constraints, Directed Search, Competing Auctions |
| JEL: | D4 D81 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/26 |
| By: | Alex Chernoff; Allen Head; Beverly Lapham |
| Abstract: | We develop and estimate a search model in which identical consumers trade with price-setting firms that differ in productivity. In the model, equilibrium distributions of both prices and markups are non-degenerate and continuous with a firm’s price decreasing as its productivity increases. Variation in markups across firms is more complicated and depends on the search process and the distribution of productivity, both of which are estimated using firm-level data on retail industries in Canada. We use the estimated model to characterize the qualitative and quantitative differences in prices and markups across firms. These differences stem from firm-level variation in demand elasticities driven by productivity heterogeneity and by imperfect information about prices. Additionally, we derive analytical expressions to determine how individual firm prices and markups respond to changes in cost and demand. This allows us to empirically analyze the heterogeneity in firms’ pass-through of cost and demand shocks to prices and markups. Our findings reveal substantial heterogeneity in pass-through across firms, highlighting the distributional impact of shocks across consumers purchasing at different points of the price distribution. Finally, our analysis underscores the importance of accounting for individual firm price and markup adjustments to fully understand pass-through to average prices. |
| Keywords: | Inflation and prices; Service sector |
| JEL: | E31 L16 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-50 |
| By: | Giovanazzi, Carmen |
| Abstract: | We analyze the dynamics of mergers and acquisitions (M&A) in the United States (US) and Germany in the 2000s, drawing on the Varieties of Capitalism (VoC) framework and the concept of internal capitalist diversity. Using SDC Platinum transaction data from 2000 to 2023 and qualitative insights from semi-structured interviews with 28 M&A professionals, we investigate how firm characteristics and institutional frameworks drive M&A activity in both countries. We confirm VoC-based expectations regarding transaction volumes and industry patterns but also highlight the professionalization of M&A functions across large, listed firms, alongside an increasing role of financial acquirers in both markets. While the rise of private equity aligns with the exit-driven strategies of small and medium-sized enterprises (SMEs) in the US, it raises questions regarding family-owned SMEs in Germany, which prioritize continuity and legacy but increasingly face succession challenges. Our findings suggest a continued hybridization of Germany's stakeholder-oriented corporate governance, integrating shareholder-oriented practices beyond large, listed firms. |
| Keywords: | M&A, Varieties of Capitalism, Financialization, Germany, US |
| JEL: | G34 L2 P52 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifsowp:308062 |
| By: | Brüll, Eduard; Rostam-Afschar, Davud; Schlenker, Oliver |
| Abstract: | We study how the threat of entry affects service quantity and quality of general practitioners (GPs). We leverage Germany's needs-based primary care planning system, in which the likelihood of new GPs reduces by 20 percentage points when primary care coverage exceeds a cut-off. We compile novel data covering all German primary care regions and up to 30, 000 GP-level observations from 2014 to 2019. Reduced threat of entry lowers patient satisfaction for incumbent GPs without nearby competitors but not in areas with competitors. We find no effects on working hours or quality measures at the regional level including hospitalizations and mortality. |
| Keywords: | Entry regulation, general practitioners, healthcare provision, threat of entry, regression discontinuity design |
| JEL: | I11 I18 J44 J22 L10 L22 R23 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1537 |
| By: | Kosuke Aoki (University of Tokyo); Yoshihiko Hogen (Bank of Japan); Yojiro Ito (Bank of Japan); Kenji Kanai (Bank of Japan); Kosuke Takatomi (Bank of Japan) |
| Abstract: | In this paper, we analyze determinants of price markups and their relationship with aggregate productivity based on long-term estimates of price markups and wage markdowns for Japanese firms. The main results are summarized as follows. First, we find that, in order to maintain profitability, Japanese firms have raised their wage markdowns while their price markups have declined since the late 1990s. Both the U.S. and Japanese firms experienced rising wage markdowns, but Japanese firms differ in that they experienced declining price markups. Second, regarding determinants of price markups for Japanese firms, we find that firms' investment in intangible assets has significantly contributed to raising price markups across industries. Meanwhile, in manufacturing, a decline in Japan's share of global exports due to changes in the international competitive environment has worked as a force for exerting downward pressure on price markups. In non-manufacturing, the number of stores per capita increased which worked as a force for enhancing the severity of price competition and exerted downward pressure on price markups. Third, we find that TFP growth in Japan was mainly driven by (1) the efficiency improvements from declining price markups, and (2) contributions from technological progress was much smaller than those of the United States. We also show that Japan's technological frontier, as measured by actual output and price markups, did not expand as much as in the United States. |
| Keywords: | Price markup; Wage markdown; Competition; Productivity; Resource allocation |
| JEL: | E24 E31 J30 J42 L12 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e15 |
| By: | Rosati, Nicoletta; Bomprezzi, Pietro; Martinez Cillero, Maria |
| Abstract: | The debate on common shareholding and its potential antitrust effects is currently on the agenda of major institutions worldwide. Discussions point to the need for improved empirical quantification of this phenomena. This work presents a flexible, multifaceted statistical framework for a set of new common shareholding indicators, covering both firm and investor perspectives, which can be adopted under different economic models. Many indices currently used in the literature fall within this framework as special cases. Aggregation at market level yields suitable industry-level indicators, providing policymakers with tools to evaluate the extent of common ownership in strategic markets. The indices are tested using firm-level data for European Mobile Network Operators in 2007–2021, showing a sector with concentrated ownership under large corporate groups, but also the presence of institutional investors with extensive ownership across the major firms. |
| Keywords: | Common ownership, Corporate governance, Networks, Mobile network operators, Anti-competitive practices |
| JEL: | C18 D21 D22 G11 G32 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:306566 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | This paper presents a competitive search model focusing on the impact of asymmetric information on credit markets. We show that limited entry by lenders results in endogenous credit rationing, which, in turn, plays a key role in managing adverse selection and prevents the credit market from collapsing. |
| Keywords: | Asymmetric Information, Credit Rationing, Directed Search |
| JEL: | D82 D43 G20 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/25 |
| By: | Molina, Hugo (Université Paris-Saclay, INRAE); Wang, Ao (University of Warwick) |
| Abstract: | We develop an empirical framework to analyze vertical relationships with manufacturer-retailer bargaining. Our key innovation is the introduction of a novel Nash-in-Nash bargaining model that incorporates uncertainty in retailers’ pricing responses to wholesale prices. This model extends existing Nash-in-Nash frameworks by relaxing assumptions about the timing of wholesale and retail price setting. We show that our model can be microfounded by a two-stage noncooperative game with delegated negotiations. We propose a two-step strategy that separably identifies bargaining and responsiveness parameters and implies a Generalized Method of Moments estimation procedure. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1534 |
| By: | Anderlik, Jasmin (Ministry of Labor and the Economy (Vienna)); Jumaniyozova, Malika (Johannes Kepler University Linz); Schmidpeter, Bernhard (Vienna University of Economics and Business); Winter-Ebmer, Rudolf (Johannes Kepler University Linz) |
| Abstract: | Using linked vacancy-employer-employee data from Austria, we investigate how monopsony power affects firms' posting behavior and wage negotiations. Consistent with theoretical predictions, we find that firms with greater monopsony power post lower wages and offer fewer non-wage amenities, suggesting that wages and non-wage benefits are complementary. However, we find no evidence that monopsonistic firms demand higher levels of skill or education. Instead, our results indicate that they require more basic skills, particularly those related to routine tasks. On the workers' side, we find that employees hired in monopsonistic labor markets face significantly lower wages, both initially and in the long run. These lower wages are driven by both lower posted wages and reduced bargaining power, as well as reduced opportunities to climb the wage ladder later. |
| Keywords: | monopsony, wages, bargaining, upskilling |
| JEL: | J12 J16 J13 J22 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17585 |
| By: | Jin Cao (Norges Bank - Research Department; CESifo (Center for Economic Studies and Ifo Institute)); Emilia Garcia-Appendini (Norges Bank; University of St. Gallen - School of Finance; Swiss Finance Institute); Cédric Huylebroek (KU Leuven - Faculty of Economics and Business) |
| Abstract: | By lending to a firm, inside banks gain an informational advantage over outside banks, enabling them to hold up borrowers and extract informational rents. Using unique data on firm-bank deposit and lending relationships in Norway, we show that deposit relationships between firms and outside banks mitigate inside banks’ informational advantage, thereby attenuating hold-up. This result holds using quasi-random variation in deposit relationships induced by the deposit insurance threshold, and is driven by the information provided by firms’ deposit account activities to outside banks (not cross-selling). Overall, our paper offers the first evidence that deposit relationships impact lender competition. |
| Keywords: | Deposit relationships, Hold-up problems, Lender competition, Lender switching, Information asymmetries |
| JEL: | G21 D82 L10 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2464 |
| By: | Seiya Hirano |
| Abstract: | This paper studies the relationship between optimal dynamic pricing for network goods and the coordination of consumers' adoption decisions. We show that based on risk dominance criterion, consumers face the risk of coordination failure, and introductory pricing is optimal if the risk is higher in period~1 without network. We find that under threshold coordination, the impact of price on the network size varies according to consumer beliefs. In pessimistic (optimistic) threshold coordination, the network size expands (shrinks) as the price increases. Lowering (Raising) the price in period~2 implies a smaller network size, so introductory (skim) pricing is optimal. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1267 |
| By: | Xiaoyang Li |
| Abstract: | Conventional wisdom suggests that after a technological breakthrough, the number of active firms first surges, and then sharply declines, in what is known as a “shakeout”. This paper challenges that notion with new empirical evidence from across the U.S. economy, revealing that shakeouts are the exception, not the rule. I develop a statistical strategy to detect breakthroughs by isolating sustained anomalies in net firm entry rates, offering a robust alternative to narrative-driven approaches that can be applied to all industries. The results of this strategy, which reliably align with well-documented breakthroughs and remain consistent across various validation tests, uncover a novel trend: the number of entry-driven breakthroughs has been declining over time. The variability and frequent absence of shakeouts across breakthrough industries are consistent with breakthroughs primarily occurring in industries with low returns to scale and with modest learning curves, shifting the narrative on the nature of innovation over the past forty years in the U.S. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-70 |
| By: | Andrea Colciago (De Nederlandsche Bank and University of Milano Bicocca); Marco Membretti (University of Pavia) |
| Abstract: | We study the labor market effects of Temporary Barriers to Entry (TBEs). Estimates from a mixed-frequency Bayesian VAR show that TBEs: (i) reduce job creation by new entrants, but boost it for incumbent firms; (ii) persistently increase employment concentration in large firms; (iii) temporarily reduce unemployment, but are recessionary in the long run; and (iv) mainly result from federal regulation. We build a macroeconomic model, featuring firm heterogeneity, endogenous entry and exit, and labor market frictions, which successfully reproduces the VAR evidence. The model shows that TBEs temporarily boost short-run economic activity by favoring existing firms, but are ultimately costly. Policy measures aimed at protecting incumbent firms, even if temporary, entail welfare costs. |
| Keywords: | Job Creation; Reallocation; Unemployment; Heterogeneous firms; BVAR. |
| JEL: | C13 E32 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:pav:demwpp:demwp0222 |