Industrial Organization: Markets and Strategies
Abstract
Cambridge Core - Strategic Management - Industrial Organization - by Paul Belleflamme
... This effect must be big enough to compensate the second effect: firms outside from the merge will increase their quantity, in Cournot competition, making the merge less profitable. This condition is satisfied only if the market is concentrated (Belleflamme and Peitz, 2010). ...
... Since the early 1990s, the number of mergers and acquisitions in the Energy industry increased in line with the development of the European market. This was possible thanks also to the introduction of the unique currency which allowed to cross-border deals (Belleflamme and Peitz, 2010). ...
The Italian Energy industry has undergone changes and it had to adapt to alterations given by the economic and environmental trend in the last decades, especially in the last months with the war outbreak. The transition to the green economy and to the renewable energy has put this market in front of challenges of various perspectives leading it to a new framework.
The passage from a centralised to a more decentralised arrangement, both in terms of consumption and production, has affected the organisational structure of the interested firms. Furthermore, new EU policies have been enacted in order to face the severe environmental issue, using the energy efficiency as a tool to incentivise the improvement on sustainability and renewability.
This paper investigates the Italian energy industry and the effects given by M&A in it.
Mergers and Acquisitions are operations relevant not only from a financial or corporate point of view, but they also imply effects on the economy related to the market and its forces. We focus our study on the merger and acquisitions of the firms involved in the research. We build a model which studies the probability of being acquired of the firms involved in the analysis and all the factors that influence this probability, since the latter implies a higher concentration in the market. The analysis is implemented by using the stochastic frontier analysis. In addition, we include in the analysis all the variables that may affect the dependent variable such as the revenues, costs management, nationality others.
The analysis makes use of data on M&A collected on Bloomberg and data on firms’ balance sheet collected on the Aida database, both for the period from 2011 to 2020. According to this analysis, this paper sets his aim on the study of the energy market based on the evolution which interested the most recent past.
... There is an extensive stream of literature focusing on the motives and consequences of M&As beyond the market power and cost efficiency hypothesis (e.g., Belleflamme & Peitz, 2015). For example, firms might consider acquiring targets with significant research and development (R&D) expenses and limited growth opportunities as a means of enhancing innovation (Phillips & Zhdanov, 2013;Bena & Li, 2014). ...
... First, the negative coefficients for Horizontal in all columns indicate that firms would not have increased R&D spending had the antitrust regulation not been put into effect. The coefficients show that newly combined enterprises lower R&D spending by approximately − 0.2% on average, consistent with earlier studies that highlight firms' incentives to engage in acquisitions for innovation (Belleflamme & Peitz, 2015;Kong et al., 2022). However, the coefficients for After*Horizontal are all statistically significant at the 5% level and display an increasing pattern as the number of years post-merger increases. ...
Using data on 4784 completed mergers and acquisitions in China announced between 2002 and 2016, we find that the adoption of the Chinese Anti-Monopoly Law substantially reduces the shareholder returns for horizontal acquisitions. Based on our findings on reduced post-merger sales and returns, we argue that a loss of market power drives this negative relationship. We also find that the acquiring firms’ cost efficiency does not significantly change as a result of the combination, suggesting that the decline in shareholders’ wealth after horizontal mergers is not because of reduced cost efficiency. Furthermore, we conduct a series of robustness checks to examine how adopting antitrust law decreases the wealth of producing firms’ shareholders. Overall, our results indicate that the government must implement stricter guidelines for antitrust policies to protect consumer welfare.
... In the competing market, consumers' willingness to pay for a given product will increase with the perceived value of the product's green features, which motivates firms to develop products with greener characteristics, quality considerations, and economical pricing strategies. In this context, we consider a Hotelling model to capture product differentiation (e.g., Harold, 1929;Belleflamme and Peitz, 2015;Li et al., 2020). We assume that consumer obtain extra utility βz ik by consuming the product from the firm that made the investment z ik in product green features, where β is a positive parameter. ...
... Thus, a consumer located at x 1k incurs a cost of αx 1k when purchasing product 1 and a cost of α(1 − x 1k ) when purchasing product 2. There is a continuum of consumers who are uniformly located over the interval [0, 1] (Belleflamme and Peitz, 2015). We can derive the location of the indifferent consumer x 1k by solving the equation U 1k = U 2k . ...
Governments often provide subsidies to incentivize investments that are considered important for the society. The question is how to distribute those subsidies in the most efficient way. This paper proposes two novel contest-based subsidy mechanisms and evaluates their effectiveness in terms of firms’ environmental investments, profits, consumer and producer surplus, environmental damage and social welfare. In the product green features (PGF) subsidy mechanism firms compete in terms of investment in product green features in order to obtain the highest amount of subsidy. In the CO2 abatement (ABA) subsidy mechanism firms compete in terms of investment in CO2 abatement in order to obtain the highest amount of subsidy. Among other results, we found that the PGF subsidy mechanism is more effective to promote investments in product green features and to increase consumer surplus. However, the ABA subsidy mechanism is found to be more effective in industries or technologies in which the level of emissions is relatively low. However, such environmental policies may lead to inflation, and may not always improve social welfare. This paper opens new avenues of research and thinking in terms of environmental subsidies and policy.
... Specifically, when buyers arrive at the market randomly, there is a unique (asymmetric) equilibrium in which the first seller prices just low enough to safeguard from being undercut by the second-moving seller, who instead names a higher profit-maximizing price. A somewhat similar outcome has been observed in other applications of industrial organization, e.g., consumer inertia (Belleflamme & Peitz, 2015) or "judo-economics" (Gelman & Salop, 1983), where one of the sellers has an incentive to price strategically lower. ...
In this paper I examine price competition between two sellers who sequentially arrive at an online consumer-to-consumer market: e.g., Craigslist. Each seller has one unit of a homogeneous good that she wants to sell to a pool of buyers. When buyers arrive randomly at the market, I show that there is a unique equilibrium, in which sellers choose different prices and earn the same profit. When buyers’ arrival positively correlates with their valuations, an additional equilibrium outcome has sellers choose almost the same prices but with the second-arriving seller earning a higher profit. I discuss how these results relate to the environment of traditional markets analyzed in Hviid (1990).
... This is a well-known result in the literature. SeeBelleflamme and Peitz (2010). ...
This paper analyzes the relationship between consumer privacy and firms' incentives to collude. It shows that from a consumer surplus perspective, the optimal privacy cost (to deter collusion) depends on the underlying market characteristics. An increase in privacy cost makes it harder for collusion to sustain unless products are sufficiently differentiated. In the latter case, the sustainability of collusion first declines and then enhances due to an increase in privacy cost. This is true if consumers can ensure their full privacy by paying a cost. On the other hand, if consumers can protect their privacy only partially, collusion sustainability does not depend on the privacy cost. However, this is no longer true when consumers have limited strategic sophistication. These findings have important policy implications. Further, the main findings under full privacy are discussed when (i) consumers have an intrinsic taste for privacy and (ii) the market demand changes over time. JEL Codes: D43, L13, L86
... The concentration ratio and HHI are commonly used to measure the market concentration in whole industries [16]. The HHI can additionally be used to measure the distribution of wealth between households [17]. The Gini index can be used to measure concentration as well as inequality on blockchains [6,18]. ...
... Por ejemplo, en México, en distintos periodos de la última década, a las empresas micro y pequeñas les han cobrado tasas de interés que oscilan entre 8% y 25%, según sea el banco otorgante del crédito, mientras que para las empresas medianas (con más de 5 millones de pesos de endeudamiento total) la dispersión fue entre 8% y 12%. Esta dispersión en las tasas se considera evidencia de altos costos de búsqueda o movilidad (Belleflamme y Peitz, 2010). ...
El objetivo general del presente trabajo es estudiar la evolución de las tasas de interés bancarias cobradas a las pymes en México, por medio de la revisión de las trayectorias individuales de 14 bancos representativos del sistema bancario mexicano. En particular, se analiza si existe una relación de largo plazo (mediante las pruebas de cointegración de Johansen y de Gregory-Hansen) entre la serie de la tasa de referencia TIIE 28 días y la serie de tasa de interés para Pymes de cada banco. Los resultados muestran que el seguir la misma trayectoria de largo plazo que la tasa de referencia no asegura una conducta competitiva (en precios) por parte de los bancos. Los bancos de escala grande son los únicos capaces de cobrar tasas por encima de la tasa promedio del mercado. Además, no existe una relación entre el nivel de las tasas fijadas por los bancos y su participación de mercado en el crédito a las pymes, lo cual significa que las tasas de interés no representan una variable fundamental de competencia en dicho mercado.
... Consequently, certain utilities -such as ownership, place, time, and form-must be added to this process (McCarthy and Perreault, 1994). Consequently, once they have been produced, several products require intermediation, in order to easily reach the consumers (Belleflamme and Peitz, 2010). ...
Objective: To analyze the jalapeño pepper characteristics and demand of the restaurant sector in Quintana Roo, in order to identify the supply requirements of this sector. Design/Methodology/Approach: A random sample of n=73 restaurants were surveyed online. Results: Most of the restaurants (87.5%) have been in business for less than six years and —although most of them sell Mexican food— only 41.6% are interested in purchasing jalapeño peppers from the producers. Study Limitations/Implications: Producers must invest their social capital in order to firmly establish a supply strategy. Findings/Conclusions: The restaurants that purchase jalapeño pepper demand a constant delivery frequency, size, pungency level, and specific color.
... The standard setup consists of a two-stage game: First, firms simultaneously set prices; second, consumers choose a firm and make a purchase. In the simple case where the distribution F of consumers is uniform the game has a unique subgame perfect equilibrium: firms' prices are p A = p B = t, consumers in [0, 0.5) buy from A, and consumers in (0.5, 1] buy from B (see, e.g., Belleflamme and Peitz, 2015). 3 ...
We study the costs and benefits of selling data to a competitor. Although selling all consumers' data may decrease total firm profits, there exist other selling mechanisms---in which only some consumers' data is sold---that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers' welfare, as well as both firms' profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one.
... The industrial organization literature distinguishes between direct price comparisons before and after the mergers, event studies for stock market listed firms assessing shareholder value, and merger simulations using pre-merger market information calibrating some noncooperative oligopoly models (see, e.g. Section 15.4 of [2] for a broad overview). This industrial organization literature also acknowledges that technical and cost inefficiencies may contribute to cost savings of horizontal HM&As (see, e.g., [6]). ...
This contribution investigates the effects of horizontal mergers and acquisitions on the plant capacity utilisation of the Swedish district courts over the periods 2000-2017. More specifically, we empirically demonstrate the decomposition of input-oriented and output-oriented technical efficiency by incorporating several concepts of plant capacity utilisation. Moreover, we also explore the impact of convexity on input-oriented and output-oriented measures of plant capacity in the short-run scenario in an attempt to discover the potential rationale behind the merger wave. To the best of our knowledge, we are the first to assess horizontal mergers by employing plant capacity utilisation concepts. The results indicate that the horizontal mergers improve capacity utilisation. Furthermore, the nonconvex frontier method provides a more conservative estimate of plant capacity changes of this merger wave.
... According to Belleflamme, Paul, and Martin Peitz (2015) [15], the utility function is ...
... However, homogeneous products are frequently sold for broadly changing prices ( Aumann & Hart, 1992 ). Spatial price dispersion evolves when different vendors simultaneously sell a homogenous item at different prices. In fact, sellers follow asymmetric strategies instead of randomizing prices ( Belleflamme & Peitz, 2015 ). ...
This paper aims to investigate the spatial price dispersion and estimate the price determinants of a homogeneous product sold by marketing channels in the industrial automation market in the south of Germany. Empirical studies reveal that different prices are charged for the same homogeneous products, which shows a clear deviation from the law of one price. Understanding the key determinants of the prices charged by the marketing channels enables manufacturers to design appropriate channel selection criteria with regional differentiation and to improve their existing channel performance management. This research proposes a new geomarketing approach that combines spatial and hedonic price modeling by using deep learning. Since ANN models are often perceived as a “black box”, this paper demonstrates a technique for extracting knowledge from an ANN to leverage the market intelligence. This study reveals the causal relationships between the explanatory variables and the price within the ANN model. The results indicate that deep learning models provide higher accuracy in modeling the price and its determinants compared to statistical models. However, the econometric model GWR enables detecting the geographical variation, also called spatial heterogeneity, among the retained variables to explain the patterns of price, especially their volatility across space.
... Contrary to the traditional markets, I show that in online C-2-C markets with random arrival of buyers only one of the equilibria holds -specifically, the one in which the first seller prices just low enough to safeguard from being undercut by the second-moving seller, who instead names a higher profit-maximizing price. A somewhat similar outcome has been observed in other applications of industrial organization, e.g., consumer inertia (Belleflamme and Peitz, 2015) or "judo-economics" (Gelman and Salop, 1983), where one of the sellers has an incentive to price strategically lower. ...
This paper considers the possibility of technology licensing via fixed‐fee, royalty or two‐part tariff and tacit collusion between firms that produce homogeneous goods under asymmetric cost structures and compete in quantities. In contrast to Lin (1996), all forms of licensing facilitate (obstruct) collusion, if the initial cost difference between the firms is relatively less (more). Technology will always be licensed, and the optimal form of licensing is either fixed‐fee or royalty or two‐part tariff, but collusion may or may not be possible post‐licensing. Welfare decreases after licensing if the firms collude only after licensing but not collude under no‐licensing.
We present preferences exhibiting a so-called subordinate good, namely a commodity such that the willingness to pay for it increases when the consumption of all goods increases proportionally, and thus receives a negative price-cost margin according to Ramsey pricing. We also show that its Bertrand equilibrium price is above its Cournotian price.
This study touched on the impact of vertical integration strategy directions, whether backward (upstream) or forward (downstream), on the company market power.
From the theoretical side, this study dealt with how the vertical integration strategy works to treat the imbalances associated with the flexibility of substituting production factors, and the double marginalization and pricing problems, at the same time, what this strategy constitutes as an entry barrier, achieving all that, the allocative and pricing efficiency, which lead to enhance the company market power.
Empirically, the topic also touched on the efficiency of the Algerian pharmaceutical industry structure and the role of industrial policy, in regulating the industry on the one hand, and forming a barrier to entering the industry, on the other hand, as well as focusing on the extent of vertical integration trends in the SAIDAL industrial complex, and the impact of trends on its market power.
The results of this study proved the positive relationship between the degree of vertical integration in the SAIDAL industrial complex, and the degree of market power of this complex.تطرقت هذه الدراسة إلى أثر اتجاهات إستراتيجية التكامل العمودي، سواء الخلفي (المنبع) أو الأمامي (المصب)، على القوة السوقية للمؤسسة الصناعية.
حيث تناولت هذه الدراسة من شقها النظري، كيفية عمل إستراتيجية التكامل العمودي على معالجة الاختلالات المرتبطة بمرونة إحلال عناصر الإنتاج، والمشاكل المتعلقة بازدواجية الهوامش والتسعير، وفي نفس الوقت، ما تشكله هذه الإستراتيجة كعائق للدخول، محققة بكل ذلك، الكفاءة التوزيعية للموارد والكفاءة التسعيرية، المؤديتان إلى تعزيز القوة السوقية للمؤسسة الصناعية.
كما تطرق الموضوع، في شقه التطبيقي، إلى مدى كفاءة هيكل الصناعة الصيدلانية الجزائرية، وما تلعبه السياسة الصناعية الحكومية، في تنظيم الصناعة من جهة، وتشكيل حائل دون الدخول إلى الصناعة، من جهة أخرى، كذلك التركيز على مدى اتجاهات التكامل العمودي بالمجمع الصناعي صيدال، وأثر هذه الاتجاهات على قوته السوقية.
وأثبتت نتائج هذه الدراسة، العلاقة الطردية بين درجة التكامل العمودي في المجمع الصناعي صيدال، ودرجة القوة السوقية للمجمع.
Cette étude a abordé l'impact des orientations de la stratégie d'intégration verticale en amont ou en aval, sur le pouvoir de marché de l’entreprise industrielle.
Théoriquement, cette étude a porté sur le fonctionnement de la stratégie d'intégration verticale pour traiter les déséquilibres associés à la flexibilité de substitution des facteurs de production, et les problèmes de double marginalisation et de tarification, en même temps, ce que cette stratégie constitue comme une barrière à l'entrée, atteindre tout cela, l'efficacité allocative et tarifaire, qui conduisent à renforcer le pouvoir de marché de l'entreprise.
Empiriquement, le sujet a également abordé l'efficacité de la structure de l'industrie pharmaceutique algérienne et le rôle de la politique industrielle de l’État, dans la régulation de l'industrie d'une part, et la figuration d'une barrière à l'entrée dans l'industrie, d'autre part, ainsi que de se concentrer sur l'ampleur des directions d'intégration verticale dans le complexe industriel de SAIDAL, et l'impact des tendances sur son pouvoir de marché.
Les résultats de cette étude ont prouvé la relation positive entre le degré d'intégration verticale dans le complexe industriel SAIDAL, et le degré de pouvoir de marché de ce groupe.
This paper provides experimental evidence on the economic determinants of intermediation networks by considering two pricing rules-respectively, criticality and betweenness-and three group sizes of subjects-10, 50, and 100 subjects. We find that when brokerage benefits accrue only to traders who lie on all paths of intermediation, stable networks involve interconnected cycles, and trading path lengths grow while linking and payoff inequality remain modest as the number of traders grows. By contrast, when brokerage benefits are equally distributed among traders on the shortest paths, stable networks contain a few hubs that provide the vast majority of links, and trading path lengths remain unchanged while linking and payoff inequality explode as the number of traders grows.
We study sequential mergers under incomplete information where the follower is ignorant about the leader's merger synergy. When the follower's own synergy is sufficiently large, incomplete information induces both firms to merge more. These additional mergers benefit both firms and total welfare but hurt consumers. If the follower's synergy is very small, the leader is unable to take any strategic action, and most results are reversed. The analysis suggests that incomplete information strengthens the strategic complementarity between the two mergers and thereby increases the likelihood of a merger wave.
We implement an experimental design based on a duopoly game in order to analyse the impact of public subsidies on the willingness to cooperate in research and development (R&D) activities. We first implement six experimental markets by exogenously varying the level of knowledge spillovers (low or high) and the intensity of competition in the product market (low, intermediate, or high). We find that the probability of cooperation increases in the level of spillovers and decreases in that of market competition. We then replicate the six experimental markets by subsidising subjects who cooperate. Whenever they are sufficient to change the incentive structure of the game, subsidies substantially increase the probability of cooperation, causing, however, a reduction of R&D investments. Overall, our evidence suggests that, depending on the characteristics of the market, the provision of subsidies is not always desirable. These might be redundant because firms have sufficient private incentives to invest cooperatively in R&D, or even counterproductive, as they might induce firms to significantly reduce R&D investments compared to the noncooperative scenario.
The development of blockchain-based applications, to date mostly virtual currencies, touches many areas of law and economics. The most well-known applications of public blockchains rely on Proof of Work as a consensus mechanism in which miners compete to solve a cryptographic puzzle. We argue that economic tools for market definition may be adapted to delineate relevant cryptocurrency mining markets. Antitrust law can help to prevent network attacks and exclusion of transactions with lower fees by large miners. When multiple blockchains are part of the same market, the role of network effects in securing the leading position of more established cryptocurrencies can potentially lead to exclusionary behaviour.
We explore how substitutability between internal and external R&D influences business conduct with regard to R&D approaches and their implementation with the support of managerial resources in a competitive innovation game. We develop a duopoly model which incorporates the assumption of substitutability due to managerial diseconomies of scope in firms using different innovation mechanisms to access technology. We establish that firms substitute internal sources of innovation for external sources as exogenous spillovers increase to manage the diseconomies of scope. We find a tension between the knowledge disclosures and the protections of innovation returns that arises as a paradox for firms. The finding of a positive association between the choice of a firm to be connected with the R&D environment and the appropriability of its innovation returns is understood to be consistent with empirical results of a paradox of openness that firms open to external sources of innovation face.
In the seed sector, for some self-pollinated varieties such as wheat, innovative breeders compete directly with self-producing farmers for commercializing their new seed varieties. The use of farm-saved seed (FSS) can reduce breeders’ incentive to innovate. Several countries have established different royalty systems for both certified seed and FSS to reduce such inefficiencies. In this article, we develop a theoretical model to compare these different systems. More precisely, we compare six different systems by analyzing their impact on the incentive to innovate, as well as production efficiencies at both the seed and agricultural production levels. We show that royalty systems leading to a certain proportion of FSS are welfare improving. The systems leading the highest total welfare levels are those in which the royalty level on FSS is regulated, i.e., either defined directly by the regulator (French or UK systems) or imposed at the same level of certified seed (Australian system). When all economic effects are taken into account, the Australian system performs better with high research costs. Conversely, with low research costs, the best system is either the French or the UK system, depending on the relative cost of producing FSS vs. certified seed.
Zusammenfassung
Inwieweit sind Verlage gegenüber ihren Autor*innen verpflichtet, den Verlagsvertrag und die darin enthaltenen Vereinbarungen zu erfüllen, wenn gegen Autor*innen schwere Vorwürfe erhoben werden? Menschen, die im Rampenlicht stehen – und dazu gehören auch Autor*innen – werden genau beobachtet, und Nachrichten (aber auch Gerüchte) verbreiten sich heute schneller denn je. Insbesondere in den USA steigen die Anforderungen an moralisches Handeln der Unternehmen; zudem wird durch das Internet und vor allem die sozialen Netzwerke nahezu jegliches außerberufliche Verhalten „unter das Mikroskop“ gelegt. Damit zusammenhängend werden morality clauses (auch morals clauses, zu Deutsch: Moralklauseln) im Literaturbetrieb, besonders im angloamerikanischen Raum, derzeit virulent diskutiert. Morality clauses in Verlagsverträgen sollen Verlage vor moralischen oder rechtlichen Fehltritten ihrer Autor*innen schützen, die die Verkäuflichkeit eines Werkes beeinträchtigen und/oder die Verlagsmarke beschädigen könnten. Sie geben Verlagen bei unmoralischem oder rechtswidrigem Verhalten der Autor*innen verschiedene Rechte, vor allem das Recht zur Kündigung des Vertrages.
Zusammenfassung
Bücher werden auf Märkten publiziert und entsprechend als Ware zwischen Anbietern und Nachfragern gehandelt, wodurch die Materie ‚Literatur‘ zum Gegenstand komplexer wirtschaftlicher Interaktionen und Prozesse sowie (potenziell) Marktregularien wird. Die Existenz von Buchmärkten bewirkt regelmäßig Prozesse der Vergegenständlichung von Literatur durch die Ökonomie als Wissenschaft, wobei sich die Materialität bei der forschungszweckgebundenen Übersetzung eines (zu erklärenden) sozialen Phänomens in ein mathematisches oder ökonometrisches Modell manifestiert. Während sich die Literatur als Ware sowohl als physisches Buch als auch als E-Book in der theoretischen Ökonomik vorwiegend mit seinen fixen und/oder variablen Kosten auf der Anbieterseite eines Buchmarktes vergegenständlicht, materialisiert sich das Buch in der empirischen Ökonomik auf unterschiedliche Weise mit seinen spezifischen Produkteigenschaften als abhängige oder unabhängige Modellvariable.
Zusammenfassung
Der Aufsatz untersucht anhand der beliebten Causes célèbres von Gayot de Pitaval das Verhältnis von juristischen Strafpraktiken und literarischer Aneignung sowie die Effekte eines veränderten Zeit- und Gegenwartsbewusstseins seit dem mittleren 18. Jahrhundert. Hierzu werden erstens die programmatischen Voraussetzungen, die Schreibintention und paratextuelle Legitimation des französischen Herausgebers Gayot und des anonymen deutschen Übersetzers beleuchtet. Zweitens konzentriert sich die Analyse beispielhaft auf den Fall der Madame Tiquet und den versuchten Meuchelmord an ihrem Ehemann sowie auf die intertextuellen Referenzen, die sich dabei ergeben. Drittens wird eine Heuristik vorgeschlagen, um die verschiedenen Dimensionen der Vergegenständlichung von Recht im Pitaval zu klassifizieren.
This chapter will discuss what is meant by intellectual property (IP) management, the main types of intellectual property rights (IPR)—copyright, design rights, patents and trademarks—the historical context of IP law, its social and cultural impact, and international influences.KeywordsKnowledge economyIP regimesInternational IP landscapeMonopoly
This chapter will review how IP is globally protected and the impact of IP, which is left unprotected in different business contexts. It will discuss whether regulation offers the same level of protection across different IP contexts.KeywordsProperty rightsIP lawsInternational treatiesPiracyDigital economy
Most U.S. beef packers with multiple plants now openly employ multi‐plant coordination. Using a Salop Circular City framework that includes negotiated and formula pricing, we demonstrate that multi‐plant coordination leads to wider spreads between downstream beef prices and upstream fed cattle prices if multi‐plant coordination markdowns outweigh multi‐plant coordination efficiencies. Taken together with market concentration, geography and transportation costs, and cattle cycles and related beef packer capacity utilization, multi‐plant coordination helps explain persistently wide farm‐to‐wholesale beef price spreads. We find that, as cattle inventories decline, a multi‐plant coordinator will permanently shut down a plant before the same plant run as a separate profit center will shut down, which is consistent with packer behavior in recent years. We also demonstrate that adding a strategically‐located packing plant, owned by an entrant firm, can narrow price spreads. This framework is important for ongoing policy discussions regarding the structure, conduct, and performance of the beef packing industry.
Turning to the theoretical methods of two‐sided markets, we analyze the operation mode selection of the sharing economy. Considering the interactions of the operating enterprise, resource suppliers (basic service providers), value‐added service providers, and consumers, we show that the selection of one‐sided mode, two‐sided mode, or multi‐sided mode depends on enterprise service quality, pricing power and cross‐group externalities of sharing economy service, utility evaluation and access cost of the value‐added service. Further, we give a theoretical explanation of the operation mode evolution in China's online car‐hailing market and put forward two specific multi‐sided platform development paths.
Digital platforms have reshaped many product markets and play an increasingly important role in economies around the globe. Some of these platforms have become powerful players and may possess a lot of market power. Economists use a number of indicators to assess market power. In this article we discuss to which extent these indicators are helpful in the context of digital platforms. In particular, we focus on assessing entrenched market power and the role of potential competition to constrain this power. Finally, we discuss some cross-border issues of platform market power.
We develop a Stackelberg differential game to analyze the economic effects of the reduction plan through two policy instruments, tradable permits and taxes on emissions. Emissions are a by‐product of firm output. The authority acts as a Stackelberg leader, able to set the optimal instrument's level in the light of a finite‐horizon environmental target. We show that the optimal solution of the game is dynamically consistent. Moreover, optimal environmental policies substantially impact the level and composition of economic activity. The differentiation between “clean” and “dirty” firms allows us to assess distributional effects and how environmental technology may influence the game's outcome. Results are shown to be robust under different parameterizations.
When the retail electricity market is liberalized, the incumbent firm has cost advantage over new entrants. This situation harms fair competition. To level the playing field, the entrant should also have access to low-cost generation. In this paper, we study how to utilize cost advantageous plant which is unevenly distributed in the context of electricity industry. We compare two scenarios. In the first scenario, the incumbent firm owns both the cost-inefficient technology (e.g., thermal power plants) and the cost-efficient technology (e.g., nuclear power plants), and it allows the entrant firm access to the cost-efficient one, namely private low-cost access. The second scenario involves introducing a public firm which aims to balance its revenue and cost, where all of low-cost power plants are owned by the public firm instead of the incumbent firm. The second scenario, namely public ownership, should be compared to the first one since it seems to assure that the incumbent and the entrant have equal access to the cost-efficient power plants. We consider a Cournot-type competition of a duopoly market. We first show that the total quantity of electricity supplied under public ownership is larger than that under private low-cost access. Subsequently, we reveal that the result is reversed if we assume capacity constraints and fixed costs for cost-efficient power plants. Finally, we show the condition wherein an incumbent chooses private low-cost access instead of public ownership if necessary. As TOB to EDF is being considered in France, this paper provides an analytical perspective on the nationalization of EDF.
We consider a two-sided streaming service platform that generates revenues by charging users a subscription fee for unlimited access to the content and compensates content providers (artists) through a revenue-sharing allocation rule. Platform users are heterogeneous in both their overall consumption and the distribution of their consumption over different artists. We study two primary revenue allocation rules used by market-leading music streaming platforms—pro-rata and user-centric. With pro-rata, artists are paid proportionally to their share of the overall streaming volume, whereas with user-centric, each user’s subscription fee is divided proportionally among artists based on the consumption of that user. We characterize when these two allocation rules can sustain a set of artists on the platform and compare them from both the platform’s and the artists’ perspectives. In particular, we show that, despite the cross-subsidization between low- and high-streaming-volume users, the pro-rata rule can be preferred by both the platform and the artists. Furthermore, the platform’s problem of selecting an optimal portfolio of artists is NP-complete. However, by establishing connections to the knapsack problem, we develop a polynomial time approximation scheme (PTAS) for the optimal platform’s profit. In addition to determining the platform’s optimal revenue allocation rule in the class of pro-rata and user-centric rules, we consider the optimal revenue allocation rule in the class of arbitrary rules. Building on duality theory, we develop a polynomial time algorithm that outputs a set of artists so that the platform’s profit is within a single artist’s revenue from the optimal profit.
This paper was accepted by Gabriel Weintraub, revenue management and market analytics.
Supplemental Material: The online appendices are available at https://doi.org/10.1287/mnsc.2022.4307 .
Information sharing may help firms solve the coordination and monitoring problems that threaten the sustainability of concerted practices or tacit collusion. This paper models the impact of information sharing on the incentives of firms in an oligopolistic market to sustain a concerted practice, taking into account recent theoretical developments and empirical evidence on tacit collusion. We then calibrate and simulate the effect of information sharing, mediated by the industry association, on each firm in the South African oil industry. Our analysis offers a rigorous, but also practical, framework for facilitating Competition Authorities' decision making in investigations of information sharing.
Policy-oriented economic analysis of the industrial structure of the banking industry traditionally has been guided by two intellectual paradigms: the structure-conduct-performance (SCP) hypothesis and the efficient-structure (ES) theory. The SCP hypothesis proposes that the level of concentration in a banking market influences banks’ conduct, which in turn has a bearing on loan and deposit quantities, qualities, interest rates, and other market outcomes that determine consumer welfare. The ES theory suggests that cost efficiencies resulting from expansions of scale and/or scope can lead both to expansions in loans and deposits, with associated lower loan rates and higher deposit rates. In practice, therefore, regulators contemplating applications for new banking licenses or proposed bank mergers have focused considerable attention on a perceived trade-off between resulting increases in market power versus cost-efficiency gains.
To this point, discussion of sources of interplay between bank market structure and regulation has emphasized how market structure influences effects of regulatory policies. This chapter focuses on how regulation itself can impinge on the structure of banking markets. In addition, the chapter considers the implications of competition among bank regulators, a state of affairs that has been commonplace in the USA for some time and which likely will become more pervasive elsewhere in the coming years.
This paper studies the possibility of different types of mergers when firms produce vertically and horizontally differentiated products. Two firms produce a better quality product, while the third firm produces a lower quality product and the firms compete in quantities. The merger of two firms that produce better-quality products is possible if the quality difference (net of cost) or the horizontal product differentiation are high. However, if the quality difference (net of cost) and the horizontal product differentiation are neither too high nor too low, then the firm that produces the better quality product will merge with the firm that produces a lower quality product. Welfare may increase after the merger between the two firms that produce different quality products. However, if the two firms that produce the better quality product merge then welfare always falls.
With the rapid growth of e-commerce, agency selling is currently gaining popularity among online retailers (e-tailers). Prior research implicitly abstracts away cross-brand pass-through under traditional wholesale selling (i.e., how the retail price of another brand adjusts to changes in a given brand’s wholesale price) and suggests that a shift to agency selling benefits e-tailers but harms suppliers. As an important counterweight to this result, we discover that an e-tailer’s choice regarding selling format is critically moderated by retail pass-through behavior. On the one hand, agency selling can improve channel efficiency compared with wholesale selling. On the other hand, the relative intensity of supplier competition between these two selling formats is ambiguous. We show that the existing result applies only for a nonnegative cross-brand pass-through rate (e.g., under linear demands); otherwise (e.g., under multiplicative or exponential demands), the opposite may hold. Interestingly, we find that the conflict over the preference of selling format may not arise, and that all channel members could be better off with wholesale selling. Compared with the case of Bertrand competition, the e-tailer is even more likely to adopt wholesale selling under Cournot competition. Finally, under agency selling with an endogenous commission fee, we advise caution regarding the seemingly innocuous normalization of suppliers’ marginal costs. Surprisingly, suppliers may benefit from higher marginal costs. Overall, our findings not only shed light on the theory of agency selling but also provide a plausible explanation for the observation that wholesale selling continues to prevail in online markets.
This paper was accepted by Eric Anderson, marketing.
The paper models a uniform‐price Bertrand‐price‐competition in a differentiated product oligopoly market, where the buyers' preference shows “love for variety.” The buyers differ from each other in their valuation of the differentiated product with a common outside option available to all. The model endogenously determines both the extensive and intensive margin of demand and the equilibrium number of varieties in the differentiated product market. It shows that in such a framework complementarity exists at the extensive margin of demand even in the presence of demand substitutability between the varieties. The results apply to the competition between brick and mortar shops and malls.
Two-sided markets are markets where services are provided simultaneously to more than one different group with different demand structures and indirect network effects between them, through companies called platforms. The multisided nature of these markets, the indirect network effects between the groups, and the effects of the price structure on the transaction volume necessitated the re-discussion and re-evaluation of many assumptions valid for traditional markets. So, in the analysis and evaluation of two-sided markets, taking into account the unique characteristics of these markets, new ways and methods should be preferred, and/or traditional approaches should be used by adapting them. At this point, this study deals with the issue of market power, as one of the prominent topics of competition policy, for two-sided markets with the latest developments in the literature and discusses its differentiating features from traditional approaches. For the purpose of the study, it examines the sources of market power in two-sided markets such as indirect network effects, economies of scale and usage patterns, and market power indicators such as market shares, Lerner Index, and profitability.
Die Entwicklungen des Markups und anderer volkswirtschaftlicher Kennzahlen werden zusammenfassend dargestellt und diskutiert. Weiter werden die verwendeten Modelle zur Modellierung des Markups resümiert. Insbesondere werden der Export und die Handelsliberalisierung noch einmal aufgegriffen und im Zusammenhang mit dem Markup diskutiert. Auch auf die Ergebnisse der anderen Buchkapitel wird kurz eingegangen. Einige ausblickende Bemerkungen werden gegeben.
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