Friday, August 30, 2019

Exclusive Territories and Efficiency: Evidence From the Brewing Industry

Jacob Burgdorf University of Louisville - College of Business - Department of Economics investigates Exclusive Territories and Efficiency: Evidence From the Brewing Industry.

ABSTRACT: Theories conflict as to whether vertically imposed exclusive territories have a positive or negative impact on welfare, and appropriate antitrust treatment is still debated. I examine the impact that the use of exclusive wholesale territories has in the brewing industry by studying beer sales in Indiana which banned the use of exclusive wholesale territories from 1979-2002. After the repeal of the ban, brewers specified exclusive wholesale territories in contracts. Estimates show that beer sales increased significantly and prices increased modestly. Results are consistent with higher levels of product investments downstream and efficiency-based theories of exclusive territories.

August 30, 2019 | Permalink | Comments (0)

By:	Michael Peneder (WIFO); Mark Thompson; Martin Wörter
Abstract:	We test whether intellectual property rights foster or hinder innovation by estimating IV structural equations for a large sample of Swiss firms. We find that better appropriability conditions at the industry level raise the number of competitors. However, conditional on the given industry structure, individual firms face fewer competitors, if they actually use intellectual property rights. The further impact of fewer competitors is to raise R&D, when initial competition is strong, but to reduce it, when initial competition is weak ("inverted U").


URL:	http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2019:i:577&r=com

By:	Bin Grace Li; James McAndrews; Zhu Wang
Abstract:	It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a twosided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.

URL:	http://d.repec.org/n?u=RePEc:imf:imfwpa:19/57&r=com

By:	David S. Abrams; Ufuk Akcigit; Gokhan Oz; Jeremy G. Pearce
Abstract:	How do non-practicing entities ("Patent Trolls") impact innovation and technological progress? Although this question has important implications for industrial policy, little direct evidence about it exists. This paper provides new theoretical and empirical evidence to fill that gap. In the process, we inform a debate that has historically portrayed non-practicing entities (NPEs) as either "benign middlemen", who help to reallocate IP to where it is most productive, or "stick-up artists", who exploit the patent system to extract rents and thereby hurt innovation. We employ unprecedented access to NPE-derived patent and financial data, as well as a novel model that guides our data analysis. We find that NPEs acquire patents from small firms and those that are more litigation-prone, as well as ones that are not core to the seller's business. When NPEs license patents, those that generate higher fees are closer to the licensee's business and more likely to be litigated. We also find that downstream innovation drops in fields where patents have been acquired by NPEs. Finally, our numerical analysis shows that the existence of NPEs encourages upstream innovation and discourages downstream innovation. The overall impact of NPEs depends on the share of patent infringements that come from non-innovating producers. Our results provide some support for both views of NPEs and suggests that a more nuanced perspective on NPEs and additional empirical work are needed to make informed policy decisions.


URL:	http://d.repec.org/n?u=RePEc:nbr:nberwo:25713&r=com

By:	Valentini, Edilio; Vitale, Paolo
Abstract:	In this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. Our model nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Fershtman and Kamien, 1987), which can be viewed as the continuous-time limit of our model with no uncertainty and no risk-aversion. Focusing on the continuous-time limit of the infinite horizon formulation we show that the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk aversion collapses to Fershtman and Kamien’s analogue.


URL:	http://d.repec.org/n?u=RePEc:ags:feemth:285025&r=com

By:	Maiko Koga (Bank of Japan); Koichi Yoshino (Bank of Japan); Tomoya Sakata (Bank of Japan)
Abstract:	Exploiting a large panel of firm survey data from Japan (Tankan survey), we provide micro evidence of strategic complementarity in firms' price setting. We find that a firm's price adjustment is affected by its competitors' pricing behavior and that this adjustment is larger when the firm is lowering its price, which accords with the theoretical predictions of quasi-kinked demand. Our results also indicate that firms with greater pricing power tend to be less sensitive to their competitors' behavior. Finally, we observe that heightened demand uncertainty mitigates the effect of shifts in demand conditions on the likelihood of price adjustment-evidence of wait and see pricing.



URL:	http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e05&r=com

By:	Swoboda, Sandra Maria
Abstract:	Cartel duration is influenced by market structure but it also varies depending on the cause of cartel death. This paper distinguishes between determinants which increase the probability of death by leniency application and those that increase the probability of death through intervention by competition authorities. Proportional hazard models with competing risks are applied to detected EU cartel cases for the period 2001 to 2017. The analysis indicates that the existence of industry specific problems or high cumulative market share do not give cartel members an incentive to apply for leniency, whereas companies which benefit from advantages or the existence of buyer power on the demand side are more likely to denounce the cartel. Regardless of the cause of their death, cartels lasted longer if they operated across different markets. Likewise, the probability of cartel detection by competition authorities decreases if cartel agreements affect heterogeneous products. In contrast, detection probability increases if companies are organised around an industry association with regular meetings or in case the cartel has a leader.

URL:	http://d.repec.org/n?u=RePEc:zbw:wwuifg:184&r=com

By:	Marco A. Marini
Abstract:	This paper introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I firstly review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to a n-firm vertically differentiated market to study the incentive to form either a whole market alliance or partial alliances made of subsets of consecutive firms in order to collude in prices. Within this framework I explore the price behaviour of groups of colluding firms and their incentive to either pruning or proliferating their products. It is shown that a selective pruning within the cartel always occurs. Moreover, by associating a partition function game to the n-firm vertically differentiated market, it can be shown that a sufficient condition for the cooperative (or coalitional) stability of the whole industry cartel is the equidistance of firms’ products along the quality spectrum. Without this property, and in presence of large quality differences, collusive agreements easily lose their stability. In addition, introducing a standard infinitely repeated-game approach, I show that an increase in the number of firms in the market may have contradictory effects on the incentive of firms to collude: it can make collusion easier for bottom and intermediate firms and harder for the top quality firm. Finally, by means of a three-firm example, I consider the case in which alliances can set endogenously qualities, prices and number of variants on sale. I show that, in every formed coalition, (i) market pruning dominates product proliferation and (ii) partial cartelisation always arises in equilibrium, with the bottom quality firm always belonging to the alliance.


URL:	http://d.repec.org/n?u=RePEc:ags:feemth:258011&r=com

By:	Yiwei Dou; Geng Li; Joshua Ronen
Abstract:	We study the unintended consequences of consumer financial regulations, focusing on the CARD Act, which restricts consumer credit card issuers’ ability to raise interest rates. We estimate the competitive responsiveness-the degree to which a credit card issuer changes offered interest rates in response to changes in interest rates offered by its competitors-as a measure of competition in the credit card market. Using small business card offers, which are not subject to the Act, as a control group, we find a significant decline in the competitive responsiveness after the Act. The decline in responsiveness is more pronounced for competitors’ reductions, as opposed to increases, in interest rates, and is more pronounced in areas with more subprime borrowers. The reduced competition underscores the potential unintended consequence of regulating the consumer credit market and contributes toward a more comprehensive and balanced evaluation of the costs and benefits of consumer financial regulations.



URL:	http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-18&r=com

By:	Giuseppe Moscelli (Economics of Social and Health Care Research Unit, Centre for Health Economics,University of York, UK and School of Economics, University of Surrey, Guildford, UK.); Hugh Gravelle (Economics of Social and Health Care Research Unit, Centre for Health Economics, University of York, UK); Luigi Siciliani (Economics of Social and Health Care Research Unit, Centre for Health Economics, University of York, UK and Department of Economics and Related Studies, University of York, York, UK)
Abstract:	We investigate the change in the effect of market structure on planned hospital quality for three high-volume treatments, using a quasi difference in differences approach based on the relaxation of patient constraints on hospital choice in England. We employ control functions to allow for timevarying endogeneity from unobserved patient characteristics. We find that the choice reforms reduced quality for hip and knee replacement but not for coronary bypass. This is likely due to hospitals making a larger loss on hip and knee replacements, since robustness checks rule out changes in length of stay, new competitorsâ€™ entry and hospital-level mortality as possible confounders.



URL:	http://d.repec.org/n?u=RePEc:chy:respap:162cherp&r=com

By:	Andreas Hefti; Peiyao Shen; Regina Betz
Abstract:	We study the effects of different information structures (full information, supply uncertainty and demand uncertainty) on equilibrium prices, allocative efficiency and bidding behavior in a (supply-side) uniform-price multi-unit auction, using supply function competition and a novel experimental design. Our setup integrates different types of market power and a varying level of competition. We empirically find that average prices tend to be higher under full information compared to the cases where bidders either have limited information about about the demand level or rivals’ technologies or; the latter even leading to strictly lower average prices as the exertion of market power and bid shading is strongly reduced. We explain this finding with a behavioral equilibrium concept, where bidders behave as if competing against the average market situation. Further, we address the problem of multiplicity of equilibria by exploiting the equilibrium conditions to obtain an empirical selection of the average equilibrium supply function. The respective predictions of the average prices exceed those by standard OLS in all information treatments.



URL:	http://d.repec.org/n?u=RePEc:zur:econwp:320&r=com

By:	McAdam, Peter; Petroulakis, Filippos; Vansteenkiste, Isabel; Cavalleri, Maria Chiara; Eliet, Alice; Soares, Ana
Abstract:	We examine the degree of market power in the big four countries of the euro area using macro and firm-micro data. We focus on three main indicators of market power in and across countries: namely, the concentration ratios, the markup and the degree of economic dynamism. For the macro database we use the sectoral data of KLEMs and for the micro data we use a combination of Orbis and iBACH (dating from 2006 onwards). We find that, in contrast to the situation in the US, market power metrics have been relatively stable over recent years and – in terms of the markup specifically – marginally trending down since the late 1990s, driven largely by Manufacturing. In terms of the debate as to the merits of market concentration, we find (relying on results for Manufacturing) that firms in sectors which exhibit high concentration, but are categorized as ‘high tech’ users, generally have higher TFP growth rates. By contrast, markups tend to display a bi-modal distribution when looked at through the lens of high concentration and high tech usage. These results would tend to confirm that the rise in market power documented for other economies is not obviously a euro area phenomenon and that welfare and policy analysis of market concentration is inevitably complex. JEL Classification: D2, D4, N1, O3


URL:	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192253&r=com

By:	Massimo Motta; Martin Peitz
Abstract:	The proposal to relax EU merger control to allow for anti-competitive European Champions may lead policy makers to update current merger control. While we see little merit in this specific proposal, we recommend a revision that goes into a different direction and, in particular, addresses mergers of potential competitors and the burden of proof. Thus, our proposal aims at the EC addressing problems of under-enforcement and making better-informed decisions. However, we would find it sensible to introduce in the Merger Regulation a clause whereby in exceptional and well-defined cases a merger, which would otherwise pass muster on competition grounds, may be prohibited due to defence, strategic and security of supply considerations.



URL:	http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_077&r=com

By:	Sylvain Chassang (New York University); Kei Kawai (U.C. Berkeley); Jun Nakabayashi (Kindai University); Juan Ortner (Boston University)
Abstract:	We document a novel bidding pattern observed in procurement auctions from Japan: winning bids tend to be isolated. There is a missing mass of close losing bids. This pattern is suspicious in the following sense: it is inconsistent with compet- itive behavior under arbitrary information structures. Building on this observation, we develop a theory of data-driven regulation based on â€œsafe tests,â€ i.e. tests that are passed with probability one by competitive bidders, but need not be passed by non-competitive ones. We provide a general class of safe tests exploiting weak equilib- rium conditions, and show that such tests reduce the set of equilibrium strategies that cartels can use to sustain collusion. We provide an empirical exploration of various safe tests in our data, as well as discuss collusive rationales for missing bids. Keywords: missing bids, collusion, regulation, procurement.


URL:	http://d.repec.org/n?u=RePEc:bos:wpaper:wp2019-004&r=com

By:	Mundt, Philipp; Oh, Ilfan
Abstract:	We propose a parsimonious statistical model of firm competition where structural differences in the strength of competitive pressure and the magnitude of return fluctuations above and below the system-wide benchmark translate into a skewed Subbotin or asymmetric exponential power (AEP) distribution of returns to capital. Empirical evidence from US data illustrates that the AEP distribution compares favorably to popular alternative models such as the symmetric or asymmetric Laplace density in terms of goodness of fit when entry and exit dynamics of markets are taken into account.



URL:	http://d.repec.org/n?u=RePEc:zbw:bamber:145&r=com

By:	De Ridder, M.
Abstract:	Productivity growth has stagnated over the past decade. This paper argues that the rise of intangible inputs (such as information technology) can cause a slowdown of growth through the effect it has on production and competition. I hypothesize that intangibles create a shift from variable costs to endogenous fixed costs, and use a new measure to show that the share of fixed costs in total costs rises when firms increase ICT and software investments. I then develop a quantitative framework in which intangibles reduce marginal costs and endogenously raise fixed costs, which gives firms with low adoption costs a competitive advantage. This advantage can be used to deter other firms from entering new markets and from developing higher quality products. Paradoxically, the presence of firms with high levels of intangibles can therefore reduce the rate of creative destruction and innovation. I calibrate the model using administrative data on the universe of French firms and find that, after initially boosting productivity, the rise of intangibles causes a 0.6 percentage point decline in long-term productivity growth. The model further predicts a decline in business dynamism, a fall in the labor share and an increase in markups, though markups overstate the increase in firm profits.


URL:	http://d.repec.org/n?u=RePEc:cam:camdae:1931&r=com

9° Coloquio ForoCompetencia

22 de noviembre de 2019

Pilar, Buenos Aires, Argentina

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