Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, January 20, 2021

Transactional fairness and unfair price discrimination in consumer markets

Transactional fairness and unfair price discrimination in consumer markets

By:

Bruce Lyons (Centre for Competition Policy and School of Economics, University of East Anglia); Robert Sugden (Centre for Competition Policy and School of Economics, University of East Anglia)

Abstract:

There is growing public concern about the ‘unfairness’ of many pricing practices that have become common in consumer, particularly digital, markets (e.g. auto-renewal at a high price, expensive default add-ons). Industrial and behavioural economists have developed theories that explain the conditions under which these practices are profitable for firms, and their implications for consumer welfare. We argue that there is a mismatch between the welfare economic principles on which this theoretical work is grounded and the normative perspective in which the pricing strategies in question are viewed as unfair. As a result, when regulators look to economics for guidance about fair pricing, they struggle to reconcile two fundamentally different normative approaches. We develop a concept of ‘transactional fairness’, grounded in the normative approach of Sugden’s ‘Community of Advantage’, that is reflective of public concerns. Transactional fairness requires satisfaction of ‘no deception’, ‘no hindrance’ and ‘public explanation’ criteria. It is complementary to established welfare criteria of economic efficiency and distributional equity, but is based entirely on the relationship between individual buyer and seller. Transactional fairness establishes clear principles with realistic information requirements that are appropriate for compliance by firms. The approach potentially helps restore public faith in markets without either deterring the emergence of (non-deceptive and non-hindering) business models, or requiring frequent ad hoc fire-fighting interventions by regulators.

URL:

http://d.repec.org/n?u=RePEc:uea:ueaccp:2020_07&r=com

January 20, 2021 | Permalink | Comments (0)

Complementary bidding and the collusive arrangement: Evidence from an antitrust investigation

Complementary bidding and the collusive arrangement: Evidence from an antitrust investigation

By:

Robert Clark (Queen's University); Decio Coviello (HEC Montreal); Adriano De Leverano (ZEW - Leibniz Centre for European Economic Research in Mannheim)

Abstract:

A number of recent papers have proposed that a pattern of isolated winning bids may be associated with collusion. In contrast, others have suggested that bid clustering, especially of the two lowest bids, is indicative of collusion. In this paper, we present evidence from an actual procurement cartel uncovered during an anticollusion investigation that reconciles these two points of view and shows that both patterns arise naturally together as part of a cartel arrangement featuring complementary bidding. Using a difference-in-difference approach, we compare the extent of winning-bid isolation and clustering of bids in Montreal's asphalt industry before and after the investigation to patterns over the same time span in Quebec City, whose asphalt industry has not been the subject of collusion allegations. Our findings provide causal evidence that the collusive arrangement featured both clustering and isolation. We use information from testimony of alleged participants in the cartels to explain how these two seemingly contradictory patterns can be harmonized.

URL:

http://d.repec.org/n?u=RePEc:qed:wpaper:1446&r=com

January 20, 2021 | Permalink | Comments (0)

Passive backward acquisitions and downstream collusion

Passive backward acquisitions and downstream collusion

By:

Shekhar, Shiva; Thomes, Tim Paul

Abstract:

We investigate the effects of passive backward acquisitions in their efficient upstream supplier on downstream firms' ability to collude in a dynamic game of price competition with homogeneous goods. We find that passive backward acquisitions impede downstream collusion. The main driver of our finding is that a passive backward acquisition secures an acquirer from zero continuation profits after a breakdown of collusion. This anti-collusive effect cannot be outweighed by a lower collusive price that is set by the cartel to increase the acquirer's profit from its claim on the upstream margin.

URL:

http://d.repec.org/n?u=RePEc:zbw:dicedp:351&r=com

January 20, 2021 | Permalink | Comments (0)

Product switching, market power and distance to core competency

Product switching, market power and distance to core competency

By:

R. MONIN (Insee); M. SUAREZ CASTILLO (Insee - Crest)

Abstract:

Within-firm product switching is recognised as an important source of growth. We examine how portfolio dynamics is related to product market power, product efficiency and within-firm differentiation. We derive perproduct markup and marginal cost following De Loecker et al. (2016) on a large panel of French manufacturers over 2009-2017 and build three novel measures of product similarity. We find that selection based on performance is a leading driver of the performance gap between entrant and incumbent products. Markups are as important as marginal costs in explaining selection patterns. Our results suggest that firms renew their portfolio using trial and error and select the best performing products, closer to their core competency. However at the firm level, most of markup growth is accounted for by a reallocation toward best performing products, with a minor role for product entry and exit in the short run.

URL:

http://d.repec.org/n?u=RePEc:nse:doctra:g2020-06&r=com

January 20, 2021 | Permalink | Comments (0)

Tuesday, January 19, 2021

Effect of Public Procurement Regulation on Competition and Cost-Effectiveness

Effect of Public Procurement Regulation on Competition and Cost-Effectiveness

By:

Bedri Kamil Onur Tas

Abstract:

This paper empirically investigates the impact of public procurement regulation quality on competition and cost-effectiveness. I employ the World Bank’s Benchmarking Public Procurement quality scores. Using extensive data about public procurement in the European Economic Area, Switzerland, and Macedonia, the paper exhibits positive effects of improved regulation quality. Better quality scores are associated with higher levels of competition and cost-effectiveness. Improved regulation quality significantly increases number of bidders and the probability that procurement price is lower than estimated cost

URL:

http://d.repec.org/n?u=RePEc:rsc:rsceui:2019/22&r=com

January 19, 2021 | Permalink | Comments (0)

Incentivized Mergers and Cost Effciency: Evidence from the Electricity Distribution Industry

Incentivized Mergers and Cost Effciency: Evidence from the Electricity Distribution Industry

By:

Robert Clark (Queen's University); Mario Samano (HEC Montreal)

Abstract:

In an effort to lower costs of provision, authorities have encouraged the consolidation of providers for a number of services such as electricity distributors, school boards, hospitals, and municipalities. In this paper we propose an endogenous merger process to evaluate the impact of government-provided incentives on consolidation patterns,and to evaluate the resulting outcomes. The process takes as input estimates from a stochastic frontier cost model, which yields an average cost curve for the industry. Policy parameters are used to simulate final configurations using offers that are the output of a Nash Bargaining problem. The efficiency of candidate merged entities is determined by a relative-influence function that measures the degree to which the combination of the involved firms' levels of efficiency results in cost-increasing amalgamations, and an interconnection cost that measures the impact of the size of the conglomerate that is formed. We calibrate parameters by applying the merger process to replicate the observed industry reconfiguration and then use these parameters to simulate the consolidation patterns that would have resulted from different policy incentives. We apply the method to the case of Ontario, where past mergers of local electricity distribution companies were incentivized by transfer tax reductions and a further round of mergers was recently proposed. Our findings suggest that the proposed tax incentive would have no impact on efficiency levels and consolidation patterns, and that even a substantial subsidy would still leave about five times as many LDCs as desired by policy makers.

URL:

http://d.repec.org/n?u=RePEc:qed:wpaper:1447&r=com

January 19, 2021 | Permalink | Comments (0)

Monday, January 18, 2021

Growing by the Masses - Revisiting the Link between Firm Size and Market Power

Growing by the Masses - Revisiting the Link between Firm Size and Market Power

By:

Hassan Afrouzi; Andres Drenik; Ryan Kim

Abstract:

How are a firm’s size and market power related to one another? Combining micro-data about producers and consumers, we document that while firms mainly grow by selling to more customers, their markups are only associated with their average sales per customer. To study the macroeconomic implications of these facts, we develop a model of firm dynamics with endogenous customer acquisition and variable markups. Relative to a model without customer acquisition, our model generates higher concentration at the top, but a lower aggregate markup. Our quantitative analysis reveals large welfare and efficiency losses due to (mis)allocation of customers across firms. By increasing market concentration among the most productive firms, the efficient allocation achieves 11% higher aggregate productivity and 15% higher output.

URL:

http://d.repec.org/n?u=RePEc:ces:ceswps:_8633&r=com

January 18, 2021 | Permalink | Comments (0)

Selling Consumer Data for Profit: Optimal Market-Segmentation Design and its Consequences

Selling Consumer Data for Profit: Optimal Market-Segmentation Design and its Consequences

By:

Kai Hao Yang (Cowles Foundation, Yale University)

Abstract:

A data broker sells market segmentations created by consumer data to a producer with private production cost who sells a product to a unit mass of consumers with heterogeneous values. In this setting, I completely characterize the revenue-maximizing mechanisms for the data broker. In particular, every optimal mechanism induces quasi-perfect price discrimination. That is, the data broker sells the producer a market segmentation described by a cost-dependent cutoff, such that all the consumers with values above the cutoff end up buying and paying their values while the rest of consumers do not buy. The characterization of optimal mechanisms leads to additional economically relevant implications. I show that the induced market outcomes remain unchanged even if the data broker becomes more active in the product market by gaining the ability to contract on prices; or by becoming an exclusive retailer, who purchases both the product and the exclusive right to sell the product from the producer, and then sells to the consumers directly. Moreover, vertical integration between the data broker and the producer increases total surplus while leaving the consumer surplus unchanged, since consumer surplus is zero under any optimal mechanism for the data broker.

URL:

http://d.repec.org/n?u=RePEc:cwl:cwldpp:2258&r=com

January 18, 2021 | Permalink | Comments (0)

Empirical methodology for the evaluation of collusive behaviour in vertically-related markets: an application to the "yogurt cartel" in France

Empirical methodology for the evaluation of collusive behaviour in vertically-related markets: an application to the "yogurt cartel" in France

By:

Céline Bonnet (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Zohra Bouamra-Mechemache (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract:

The paper proposes a five-step methodology based on the estimation of demand and supply models to test the existence of manufacturers' collusive behaviour and evaluate its impact on market and welfare. This methodology allows for the estimation of profit sharing in vertical chains by properly modelling the contracting stage between manufacturers and retailers. We apply this methodology to analyse the effects of the "yogurt cartel" that prevailed in the French dairy dessert market between private label providers during the period 2006-2012. We find that data supports collusive behaviour between private label manufacturers, and lead to average price increase varying from 7.3% and 11.3%, according to the product category. We found an umbrella effect on dairy products sold under national brands at the wholesale level but not at the retail level. The cartel benefits manufacturers both for the sales of the national brand and private label products, while retailers lost profits over the private label products but gained profits over the national brand products. The cartel implies a relatively low decrease in consumer welfare —lower than the gain for the industry—such that the overall welfare effect of the cartel is positive.

URL:

http://d.repec.org/n?u=RePEc:hal:journl:hal-02952676&r=com

January 18, 2021 | Permalink | Comments (0)

Using Information to Amplify Competition

Using Information to Amplify Competition

By:

Wenhao Li (Department of Economics, The Pennsylvania State University)

Abstract:

I characterize the consumer-optimal market segmentation in competitive markets with differentiated products. I show that this segmentation is public---in that each firm observes the same market segments---and takes a simple form: in each market segment, there is a dominant firm favored by all consumers in that segment. By segmenting the market, all but the dominant firm maximally compete to poach the consumer's business, setting price to equal marginal cost. Information, thus, is being used to amplify competition. This segmentation simultaneously generates an efficient allocation and delivers to each firm its minimax profit.

URL:

http://d.repec.org/n?u=RePEc:arx:papers:2010.05342&r=com

January 18, 2021 | Permalink | Comments (0)

Cartel deterrence and manager labor market in US and EU antitrust jurisdictions: theory and experimental data

Cartel deterrence and manager labor market in US and EU antitrust jurisdictions: theory and experimental data

By:

Miguel A. Fonseca (Department of Economics, University of Exeter and NIPE, Universidade do Minho); Ricardo Gonçalves (Universidade Católica Portuguesa, Católica Porto Business School and CEGE); Joana Pinho (Universidade Católica Portuguesa, Católica Porto Business School and CEGE); Giovanni Tabacco

Abstract:

We explore the consequences to contract design if firm shareholders are intent on their managers engaging in price exing activities under different legal regimes. We show that in fine-only legal regimes, optimal contracts must have a fixed wage. In contrast,in fine-plus-prosecution legal regimes optimal contracts must be high-powered,involving a variable component. We test these predictions in a laboratory experiment. We observe contract choices of firm owners, for a given legal regime, as well as the likelihood of managers forming explicit cartels and coordinating on prices in an indefinitely repeated Bertrand oligopoly, taking contract and legal regime as given. The data show that prosecuting managers leads to lower collusion, but high-powered contracts do not incentivize cartel formation or price coordination effectively, irrespective of legal regime. Nevertheless, high-powered contracts were most frequently chosen by firm owners, often with collusive intents.

URL:

http://d.repec.org/n?u=RePEc:cap:wpaper:022020&r=com

January 18, 2021 | Permalink | Comments (0)

Saturday, January 16, 2021

The Great Kosher Meat War of 1902: Immigrant Housewives and the Riots that Shook New York City

Breaking up a trust, group boycott, and an early feminist activist expression of frustration with monopoly power - what a great read!  HT: Will Tom.

 


To visit the book's website, click here.
To purchase the book, click here.

 

The Great Kosher Meat War of 1902: Immigrant Housewives and the Riots that Shook New York City

Scott D. Seligman                          

Potomac Books

University of Nebraska Press

 

American Bookfest 17th Annual Best Book Awards, Finalist

 

In the wee hours of May 15, 1902, some 3,000 immigrant Jewish women quietly took up positions on the streets of Manhattan’s Lower East Side. They assembled in the pitch black in squads of five, determined to shut down every kosher butcher shop in New York’s heavily Jewish quarter.

For years the women had patronized these butchers, who, like them, were observant Jews from Russia and Eastern Europe who had recently arrived in America. But the latest jump in the price of kosher meat had made it unaffordable, and their religious beliefs allowed them no other variety. Convinced that their butchers were gouging them, they saw no choice but to take to the streets.

Customers who crossed their picket lines were heckled and assaulted, their parcels of meat hurled into the gutter. Butchers who refused to close were attacked, their windows smashed, stocks ruined, fixtures destroyed. Brutal blows from police nightsticks sent many women to local hospitals and others to court. But the strikers persevered, and soon Jewish housewives in Brooklyn, the Bronx, Harlem, Newark and even Boston joined them in solidarity, and all the kosher butchers in the metropolitan area either shut their doors or had them shut for them.

Contemporary newspapers described it as a modern Jewish Boston Tea Party.

The true villains in the drama, however, were not the local butchers, but rather a cabal of Chicago-based meat packers who had formed a “Beef Trust” and were colluding to corner the national market for meat. Behind the scenes, they cooperated to manipulate the supply of beef sent to the cities and gouge consumers. Just as the upstart women were laying waste to New York's Lower East Side, “trust-buster” President Theodore Roosevelt launched an effort to break up the meat cartel that would take its members it all the way to the Supreme Court.

 

The book also tells the story of Jacob Joseph, the first and only Chief Rabbi of New York, a talmudic scholar brought to America at great expense to oversee the sanctity of the kosher meat supply in the city, among other tasks. The long knives were out for him, however, and the changes he instituted met with fierce resistance among corrupt players in the meat industry and Jewish consumers.

This first book-length account of the meat protest tells the inspiring story of immigrant women who, certain of the righteousness of their cause, discover their collective power as consumers and find their political voice. With few resources and little experience, but steely determination and a clear understanding of the threat their families faced, these mostly uneducated wives and mothers, some barely conversant in English, organized themselves overnight into a potent fighting force, challenged powerful, vested corporate interests and emerged victorious.

Their foray into the political and economic arena would set a pattern that future generations would employ to address injustice whenever  and wherever they experienced it.

 

January 16, 2021 | Permalink | Comments (0)

Friday, January 15, 2021

Pricing, competition and content for internet service providers

Pricing, competition and content for internet service providers

By:

Key, Peter; Steinberg, Richard

Abstract:

We examine competition between two Internet Service Providers (ISPs), where the first ISP provides basic Internet service, while the second ISP provides Internet service plus content, i.e., enhanced service , where the first ISP can partner with a Content Provider to provide the same content as the second ISP. When such a partnering arrangement occurs, the Content Provider pays the first ISP a transfer price for delivering the content. Users have heterogeneous preferences, and each in general faces three options: (1) buy basic Internet service from the first ISP; (2) buy enhanced service from the second ISP; or (3) buy enhanced service jointly from the first ISP and the Content Provider. We derive results on the existence and uniqueness of a Nash equilibrium, and provide closed-form expressions for the prices, user masses, and profits of the two ISPs and the Content Provider. When the first ISP has the ability to choose the transfer price, then when congestion is linear in the load, it is never optimal for the first ISP to set a negative transfer price in the hope of attracting more revenue from additional customers desiring enhanced service. Conversely, when congestion is sufficiently super-linear, the optimal strategy for the first ISP is either to set a negative transfer price (subsidizing the Content Provider) or to set a high transfer price that shuts the Content Provider out of the market.

URL:

http://d.repec.org/n?u=RePEc:ehl:lserod:107008&r=com

January 15, 2021 | Permalink | Comments (0)

Economic impact of category captaincy: an examination of assortments and prices

Economic impact of category captaincy: an examination of assortments and prices

By:

Viswanathan, Madhu; Narasimhan, Om; John, George

Abstract:

We empirically investigate the impact of category captaincy, an arrangement where the retailer works exclusively with a manufacturer to manage both the manufacturer’s and his rivals’ products. Using a unique data set that contains information on category captaincy as well as SKU-store-level sales and price across 24 retail chains and eight local markets in the United States for a frozen food category, we quantify the impact of captaincy on prices, assortments, profits, and consumer welfare. Interestingly, our estimates suggest that captaincy can lead to welfare gains for consumers, which argues against a purely negative view of captaincy by policy makers.

URL:

http://d.repec.org/n?u=RePEc:ehl:lserod:107034&r=com

January 15, 2021 | Permalink | Comments (0)

Competition policy and the Green Deal


Webinar in European Parliament, with MEP Stephanie Yon-Courtin, 22 September 2020

Competition policy and the Green Deal

Thank you to all who responded to our call for contributions on questions about how competition rules and sustainability policies work together. The call for contributions closed on 20 November 2020, and DG Competition received around 200 contributions, which are now being analysed.

The contributions will be published at the time of the conference organised by DG Competition, to be hosted by Executive Vice President Margrethe Vestager on 4 February 2021. This conference will bring together the different perspectives on this important topic. The programme is here.

Registration for the conference is now open, through the dedicated conference platform.

This follows the announcement in a speech on 22 September 2020, at an event hosted by MEP Stephanie Yon-Courtin, by Executive Vice-President Margrethe Vestager, of her intention to launch a European debate on how EU competition policy can best support the Green Deal.

As EVP Vestager said, competition policy cannot replace environmental laws or green investment. The question is rather if we can do more, to apply our rules in ways that better support the Green Deal.

We are looking for input from everyone with a stake in this issue – including from industry, from environmental groups, consumer organisations, as well as competition experts.

Call for contributions

 BG CS DA DE EL EN ES ET FI FR HR HU IT LT LV MT NL PL PT RO SK SL SV

The European Green Deal aims to transform the EU into a fair and prosperous society, with a modern, resource-efficient and competitive economy. The goal is for Europe to be the first climate neutral continent by 2050, where economic growth is decoupled from resource use. The coronavirus pandemic makes those ambitions even more relevant. The European Commission has put forward a major recovery plan for Europe to help repair the economic and social damage brought by the pandemic and to kick-start the European recovery in line with the twin green and digital transition goals.

As Executive Vice President Vestager has underlined: “To succeed, everyone in Europe will have to play their part – every individual, every public authority. And that includes competition enforcers.”

The goal of EU competition rules is to promote and protect effective competition in markets, delivering efficient outcomes to the benefit of consumers. Competitive markets encourage firms to produce at the lowest cost, to invest efficiently and to innovate and adopt more energy-efficient technologies. Such competitive pressure is a powerful incentive to use our planet’s scarce resources efficiently, and it complements environmental and climate policies and regulation aimed at internalising environmental costs. By helping to achieve efficient and competitive market outcomes, competition policy hence contributes by itself to the effectiveness of green policies. Competition policy is not in the lead when it comes to fighting climate change and protecting the environment. There are better, much more effective ways, such as regulation and taxation. Competition policy, however, can complement regulation and the question is how it could do that most effectively. The Commission is responsible for the enforcement of competition rules based on its competences under the Treaty and existing EU secondary legislation, under the close supervision of the EU Courts. This means that, short of any changes in the existing legal framework, competition policy’s contribution to the Green Deal can only take place within these clearly-defined boundaries.

Student challenge

Competition policy contributing to the European Green Deal is about our future – in the field of competition and on this planet. This is why we believe that future competition experts and professionals must be part of it. If you are interested in competition policy and are currently at university, you are invited to take on the Student Challenge and give yourself a chance to see your contributions published by DG Competition in a special Brief. This is how. Watch the conference webstream (link available soon) on or after 4 February 2021. Choose the panel discussion you liked best; picture yourself among its speakers; and tell us what you would have talked about. You have until 18 February to send your abstracts – no more than 250 words – to COMP-GREEN-DEAL@ec.europa.eu. We will shortlist the best submissions and the public will vote for the final winners. Read the complete Student Challenge rules . Good luck to all.

Contact us

You can contact us by e-mail to COMP-GREEN-DEAL@ec.europa.eu

January 15, 2021 | Permalink | Comments (0)

Post-Merger Product Repositioning: An Empirical Analysis

Post-Merger Product Repositioning: An Empirical Analysis

By:

Enghin Atalay; Alan Sorensen; Christopher Sullivan; Wanjia Zhu

Abstract:

This paper investigates firms’ post-merger product repositioning. We compile information on conglomerate firms’ additions and removals of products for a sample of 61 mergers and acquisitions across a wide variety of consumer packaged goods markets. We find that mergers lead to a net reduction in the number of products offered by the merging firms, and the products that are dropped tend to be particularly dissimilar to the firms’ existing products. These results are consistent with theories of the firm that emphasize core competencies linked to particular segments of the product market.

URL:

http://d.repec.org/n?u=RePEc:fip:fedpwp:88726&r=com

January 15, 2021 | Permalink | Comments (0)

Thursday, January 14, 2021

Perishability, dynamic pricing and price discrimination: evidence from flower markets in Bogotá

Perishability, dynamic pricing and price discrimination: evidence from flower markets in Bogotá

By:

Ortiz, Santiago; Castelblanco, Geraldine; Mantilla, Cesar

Abstract:

Perishable products traded in informal markets might be subject to price variations in two opposite directions. Whereas the absence of posted prices opens the door for price discrimination based on some buyers' attributes, the reduction in quality over time might decrease prices to secure a transaction. We use an audit experiment to detect these pricing patterns in the informal flower markets nearby the cemeteries of Bogotá, Colombia. We analyze 441 price quotations. We interpret the lower prices in the afternoon than in the morning as evidence of dynamic pricing. Regarding price discrimination, we find that women are quoted a higher price than men, whereas attire (formal versus informal) does not affect prices. The price variations associated with the time of the day and the gender of the buyer appear to be independent of each other.

URL:

http://d.repec.org/n?u=RePEc:osf:socarx:pv5kz&r=com

January 14, 2021 | Permalink | Comments (0)

Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach

Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach

By:

Régis Chenavaz (LTCI - Laboratoire Traitement et Communication de l'Information - Télécom ParisTech - IMT - Institut Mines-Télécom [Paris] - CNRS - Centre National de la Recherche Scientifique); Corina Paraschiv (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche); Gabriel Turinici (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche)

Abstract:

Dynamic pricing of new products has been extensively studied in monopolistic and oligopolistic markets. But, the optimal control and differential game tools used to investigate the pricing behavior on markets with a finite number of firms are not well-suited to model competitive markets with an infinity of firms. Using a mean-field games approach, this paper examines dynamic pricing policies in competitive markets, where no firm exerts market power. The theoretical setting is based on a diffusion modeì a la Bass. We prove both the existence and the uniqueness of a mean-field game equilibrium, and we investigate mean tendencies and firms dispersion in the market. Numerical simulations show that the competitive market splits into two separate groups of firms depending on their production experience. The two groups differ in price and profit. Thus, high prices and profits do not have to signal anticompetitive practices, stimulating the debate on market regulation.

URL:

http://d.repec.org/n?u=RePEc:hal:journl:hal-01592958&r=com

January 14, 2021 | Permalink | Comments (0)

Start-up Acquisitions and Innovation Strategies

Start-up Acquisitions and Innovation Strategies

By:

Schmutzler, Armin; Letina, Igor; Seibel, Regina

Abstract:

This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We apply this theory to identify the effects of prohibiting start-up acquisitions. We differentiate between killer acquisitions (when the incumbent does not commercialize the acquired start-up's technology) and acquisitions with commercialization. A restrictive acquisition policy reduces the variety of research approaches pursued by the firms and thereby the probability of discovering innovations. Furthermore, it leads to strategic duplication of the entrant's innovation by the incumbent. These negative innovation effects of restrictive acquisition policy have to be weighed against the pro-competitive effects of preserving potential competition.

URL:

http://d.repec.org/n?u=RePEc:zbw:vfsc20:224631&r=com

January 14, 2021 | Permalink | Comments (0)

Platform Price Parity Clauses and Segmentation

Platform Price Parity Clauses and Segmentation

By:

Joan Calzada (Universitat de Barcelona); Ester Manna (Universitat de Barcelona); Andrea Mantovani (University of Bologna)

Abstract:

We investigate how the adoption of price parity clauses (PPCs) by established platforms affects the listing decisions of suppliers. PPCs have been widely adopted by online travel agencies (OTAs) to force client hotels not to charge lower prices in alternative sales channels. We find that OTAs adopt PPCs when they are perceived as highly substitutable, and in order to prevent showrooming. PPCs allow OTAs to charge hotels higher commission fees. However, hotels can respond by delisting themselves from some OTAs. Hence, our analysis reveals that the removal of PPCs enables more hotels to resort to OTAs. This is beneficial for consumers, as prices decrease in absence of PPCs.

URL:

http://d.repec.org/n?u=RePEc:ewp:wpaper:387web&r=com

January 14, 2021 | Permalink | Comments (0)