This paper studies financial friction arising from oligopolistic bank competition and its impacts on small open economy’s business cycles by applying imperfect competition and endogenous firm entry theory. Using Australian data, the estimated model implies a counter-cyclical mark up in lending rate that varies inversely with number of banks. Such bank sector has a distinct shock propagation mechanism that often amplifies business cycles, depending on the type of shock. Balance sheet effects appear different compared to competitive banks, due to strategic bank behavior. Unlike previous estimated small open economy general equilibrium studies, the model can capture substantial international transmissions.
{"title":"Does Oligopolistic Banking Friction Amplify Small Open Economy’s Business Cycles?: Evidence From Australia","authors":"S. Afrin","doi":"10.2139/ssrn.3192731","DOIUrl":"https://doi.org/10.2139/ssrn.3192731","url":null,"abstract":"This paper studies financial friction arising from oligopolistic bank competition and its impacts on small open economy’s business cycles by applying imperfect competition and endogenous firm entry theory. Using Australian data, the estimated model implies a counter-cyclical mark up in lending rate that varies inversely with number of banks. Such bank sector has a distinct shock propagation mechanism that often amplifies business cycles, depending on the type of shock. Balance sheet effects appear different compared to competitive banks, due to strategic bank behavior. Unlike previous estimated small open economy general equilibrium studies, the model can capture substantial international transmissions.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129106051","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The persistent dominance of US digital platforms relates to strategies that can be justified on efficiency grounds. However, these strategies might also offset competition and have ambiguous welfare effects. Overall, though, the economic literature does not provide a clear theoretical ground for a systematic regulation of their dominance, rather it advocates a targeting of specific unlawful anticompetitive practices. The examination of the rationale of major antitrust cases vis-a-vis global digital platforms suggests that EU authorities should adjust their doctrine and practice of competition policy to make it closer to the US approach. This realigning would serve the purpose of building a competitive EU digital ecosystem and a more balanced and efficient worldwide competition between all digital providers. In addition, EU competition authorities should also support price caps as welfare enhancing forms of cooperation, which could allow the emergence of platform pricing strategies within competitive markets and not only within monopolies.
{"title":"The Market Dominance of US Digital Platforms: Antitrust Implications for the European Union","authors":"Stéphane Ciriani, M. Lebourges","doi":"10.2139/ssrn.2977933","DOIUrl":"https://doi.org/10.2139/ssrn.2977933","url":null,"abstract":"The persistent dominance of US digital platforms relates to strategies that can be justified on efficiency grounds. However, these strategies might also offset competition and have ambiguous welfare effects. Overall, though, the economic literature does not provide a clear theoretical ground for a systematic regulation of their dominance, rather it advocates a targeting of specific unlawful anticompetitive practices. The examination of the rationale of major antitrust cases vis-a-vis global digital platforms suggests that EU authorities should adjust their doctrine and practice of competition policy to make it closer to the US approach. This realigning would serve the purpose of building a competitive EU digital ecosystem and a more balanced and efficient worldwide competition between all digital providers. In addition, EU competition authorities should also support price caps as welfare enhancing forms of cooperation, which could allow the emergence of platform pricing strategies within competitive markets and not only within monopolies.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"146 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116511734","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In some industries, firms reveal forthcoming improved products through (credible) announcements. In other industries, future product improvements are not announced. In a durable goods market where sellers have private information about their future products, but do not announce those products, the market outcome is one where information about future products is signaled through prices; the signaling distortion may lead to higher or lower prices and therefore decrease or increase welfare, depending on the degree of product differentiation. Asymmetric information augments the sellers’ willingness to invest in product improvement, compared to full information.
{"title":"Signaling a New Version in Durable-Good Oligopoly","authors":"William A. Caylor","doi":"10.2139/ssrn.3166677","DOIUrl":"https://doi.org/10.2139/ssrn.3166677","url":null,"abstract":"In some industries, firms reveal forthcoming improved products through (credible) announcements. In other industries, future product improvements are not announced. In a durable goods market where sellers have private information about their future products, but do not announce those products, the market outcome is one where information about future products is signaled through prices; the signaling distortion may lead to higher or lower prices and therefore decrease or increase welfare, depending on the degree of product differentiation. Asymmetric information augments the sellers’ willingness to invest in product improvement, compared to full information.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131004797","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With the rise of a progressive antitrust movement, the power of Google, Apple, Facebook, and Amazon is now topical. This article explores some of the potential harms from data-opolies. Data-opolies, in contrast to the earlier monopolies, are unlikely to exercise their power by charging higher prices to consumers. But this does not mean they are harmless. Data-opolies can raise other significant concerns, including less privacy, degraded quality, a transfer of wealth from consumers to data-opolies, less innovation and dynamic disruption in markets in which they dominate, and political and social concerns. Data-opolies can also be more durable than some earlier monopolies. Moreover, data-opolies at times can more easily avoid antitrust scrutiny when they engage in anticompetitive tactics to attain or maintain their dominance. The United States Department of Justice has brought only one monopolization case under Section 2 of the Sherman Act in the past decade. This abdication is not justifiable going forward, given the risks posed by these data-opolies, whose abuses can affect not only our wallets, but also our privacy, autonomy, democracy, and well-being.
{"title":"Should We Be Concerned About Data-opolies?","authors":"M. Stucke","doi":"10.2139/SSRN.3144045","DOIUrl":"https://doi.org/10.2139/SSRN.3144045","url":null,"abstract":"With the rise of a progressive antitrust movement, the power of Google, Apple, Facebook, and Amazon is now topical. This article explores some of the potential harms from data-opolies. Data-opolies, in contrast to the earlier monopolies, are unlikely to exercise their power by charging higher prices to consumers. But this does not mean they are harmless. Data-opolies can raise other significant concerns, including less privacy, degraded quality, a transfer of wealth from consumers to data-opolies, less innovation and dynamic disruption in markets in which they dominate, and political and social concerns. \u0000Data-opolies can also be more durable than some earlier monopolies. Moreover, data-opolies at times can more easily avoid antitrust scrutiny when they engage in anticompetitive tactics to attain or maintain their dominance. \u0000The United States Department of Justice has brought only one monopolization case under Section 2 of the Sherman Act in the past decade. This abdication is not justifiable going forward, given the risks posed by these data-opolies, whose abuses can affect not only our wallets, but also our privacy, autonomy, democracy, and well-being.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124582619","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using data on the prices paid by multichannel video programing distributors (“MVPDs”) for basic cable networks, I conduct a retrospective analysis of the price effects of the Comcast-NBCU merger. Estimates from both the difference-in-differences and lagged-dependent variable models indicate no systematic increase in the prices for Comcast’s networks following the merger, including general interest programming, news channels, and national and regional sports networks. Programming costs, however, exert a potent influence on affiliate prices, with full pass through in many cases. The evidence suggests either that there was no net positive effect on incentives to raise prices above competitive levels following the vertical merger, or else that the behavioral remedies placed on the Comcast-NBCU merger have been effective. Accordingly, excessive concern about the prices of programming following a vertical merger in the MVPD market appear unwarranted, at least when addressed by behavioral remedies.
{"title":"A Retrospective Analysis of Vertical Mergers in Multichannel Video Programming Distribution Markets: The Comcast-NBCU Merger","authors":"George S. Ford","doi":"10.2139/ssrn.3138713","DOIUrl":"https://doi.org/10.2139/ssrn.3138713","url":null,"abstract":"Using data on the prices paid by multichannel video programing distributors (“MVPDs”) for basic cable networks, I conduct a retrospective analysis of the price effects of the Comcast-NBCU merger. Estimates from both the difference-in-differences and lagged-dependent variable models indicate no systematic increase in the prices for Comcast’s networks following the merger, including general interest programming, news channels, and national and regional sports networks. Programming costs, however, exert a potent influence on affiliate prices, with full pass through in many cases. The evidence suggests either that there was no net positive effect on incentives to raise prices above competitive levels following the vertical merger, or else that the behavioral remedies placed on the Comcast-NBCU merger have been effective. Accordingly, excessive concern about the prices of programming following a vertical merger in the MVPD market appear unwarranted, at least when addressed by behavioral remedies.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123459054","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the steady upward trend of Health Care Expenditures (HCE) over GDP for a sample of OECD countries between 1970 and 2007. Although the United States is clearly an outlier, almost all of the additional increase in US HCE happened during the 1978–1990 period. We perform two growth accounting exercises to explore sources of variability of HCE over GDP across countries. In the first growth accounting exercise based on value added we find that factor accumulation is unable to replicate the observed growth patterns. We also show that the additional increase in markups in the US corporate medical sector mimics well the ratio of HCE over GDP in the United States. This suggests that differences in the relative price of health care—rather than technology, product quality, and factor accumulation—could explain the divergent growth patterns of HCE over GDP across these countries. In the second growth accounting exercise, we filter out prices from HCE over GDP, and confirm that there is very little variability for the product quality residual to explain the variation in HCE across countries.
{"title":"Understanding Growth Patterns in US Health Care Expenditures","authors":"A. Horenstein, Manuel S. Santos","doi":"10.2139/ssrn.2942535","DOIUrl":"https://doi.org/10.2139/ssrn.2942535","url":null,"abstract":"We study the steady upward trend of Health Care Expenditures (HCE) over GDP for a sample of OECD countries between 1970 and 2007. Although the United States is clearly an outlier, almost all of the additional increase in US HCE happened during the 1978–1990 period. We perform two growth accounting exercises to explore sources of variability of HCE over GDP across countries. In the first growth accounting exercise based on value added we find that factor accumulation is unable to replicate the observed growth patterns. We also show that the additional increase in markups in the US corporate medical sector mimics well the ratio of HCE over GDP in the United States. This suggests that differences in the relative price of health care—rather than technology, product quality, and factor accumulation—could explain the divergent growth patterns of HCE over GDP across these countries. In the second growth accounting exercise, we filter out prices from HCE over GDP, and confirm that there is very little variability for the product quality residual to explain the variation in HCE across countries.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124086753","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sequential investment opportunities or the presence of a rival typically hasten investment under risk neutrality. By contrast, greater price uncertainty or risk aversion increase the incentive to postpone investment in the absence of competition. We analyse how price and technological uncertainty, reflected in the random arrival of innovations, interact with attitudes towards risk to impact both the optimal technology adoption strategy and the optimal investment policy within each strategy, under a proprietary and a non-proprietary duopoly. Results indicate that technological uncertainty increases the follower's investment incentive and delays the entry of the non-proprietary leader, yet it does not affect the proprietary leader's optimal investment policy. Additionally, we show that technological uncertainty decreases the relative loss in the value of the leader due to the follower's entry, while the corresponding impact of risk aversion is ambiguous. Interestingly, we also find that a higher first-mover advantage with respect to a new technology does not affect the leader's entry, and that technological uncertainty may turn a pre-emption game into a war of attrition, where the second-mover gets the higher payoff.
{"title":"Strategic Technology Switching Under Risk Aversion and Uncertainty","authors":"L. Sendstad, M. Chronopoulos","doi":"10.2139/ssrn.3035827","DOIUrl":"https://doi.org/10.2139/ssrn.3035827","url":null,"abstract":"Sequential investment opportunities or the presence of a rival typically hasten investment under risk neutrality. By contrast, greater price uncertainty or risk aversion increase the incentive to postpone investment in the absence of competition. We analyse how price and technological uncertainty, reflected in the random arrival of innovations, interact with attitudes towards risk to impact both the optimal technology adoption strategy and the optimal investment policy within each strategy, under a proprietary and a non-proprietary duopoly. Results indicate that technological uncertainty increases the follower's investment incentive and delays the entry of the non-proprietary leader, yet it does not affect the proprietary leader's optimal investment policy. Additionally, we show that technological uncertainty decreases the relative loss in the value of the leader due to the follower's entry, while the corresponding impact of risk aversion is ambiguous. Interestingly, we also find that a higher first-mover advantage with respect to a new technology does not affect the leader's entry, and that technological uncertainty may turn a pre-emption game into a war of attrition, where the second-mover gets the higher payoff.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133829668","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We revisit the relationships between competition and various market outcomes in a differentiated Cournot oligopoly. Consider an oligopolistic market with two differentiated varieties, where each firm sells one of the varieties. We show that social welfare and consumer surplus can decrease with the number of firms when the products of entrants and incumbents are homogeneous. Moreover, an entry of firm can increases prices and profits of firm producing the other variety. We provide a simple exposition of the conditions which determine the effect of an increase in the number of entrants on various market outcomes.
{"title":"Welfare-Reducing Entry in a Differentiated Cournot Oligopoly Without Costs","authors":"Shohei Yoshida","doi":"10.2139/ssrn.3031838","DOIUrl":"https://doi.org/10.2139/ssrn.3031838","url":null,"abstract":"We revisit the relationships between competition and various market outcomes in a differentiated Cournot oligopoly. Consider an oligopolistic market with two differentiated varieties, where each firm sells one of the varieties. We show that social welfare and consumer surplus can decrease with the number of firms when the products of entrants and incumbents are homogeneous. Moreover, an entry of firm can increases prices and profits of firm producing the other variety. We provide a simple exposition of the conditions which determine the effect of an increase in the number of entrants on various market outcomes.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114326801","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I provide a simple proof that a monopsony must necessarily be a monopoly. This is in contrast to authors who have previously asserted that either no relation exists between monopsony and monopoly, or who have relied upon additional assumptions to make an inference about monopolisitic nature of a monopsony.
{"title":"A Monopsony is Necessarily a Monopoly","authors":"Ash Navabi","doi":"10.2139/ssrn.2972793","DOIUrl":"https://doi.org/10.2139/ssrn.2972793","url":null,"abstract":"I provide a simple proof that a monopsony must necessarily be a monopoly. This is in contrast to authors who have previously asserted that either no relation exists between monopsony and monopoly, or who have relied upon additional assumptions to make an inference about monopolisitic nature of a monopsony.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125977862","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Anja M. B. De Waegenaere, R. Sansing, J. Wielhouwer
We examine operating and investment decisions in a duopolistic industry in which an initial investment in research yields an immediate tax benefit for one firm, but creates a net operating loss carryover for the other firm. We show that the conventional wisdom that suggests that the first firm is in a better position to make the research investment need not hold in a competitive environment. This occurs because if both firms invest in research, the firm with the net operating loss carryover makes more aggressive investment decisions following successful research.
{"title":"Tax Loss Carryovers in a Competitive Environment","authors":"Anja M. B. De Waegenaere, R. Sansing, J. Wielhouwer","doi":"10.2139/ssrn.2506636","DOIUrl":"https://doi.org/10.2139/ssrn.2506636","url":null,"abstract":"We examine operating and investment decisions in a duopolistic industry in which an initial investment in research yields an immediate tax benefit for one firm, but creates a net operating loss carryover for the other firm. We show that the conventional wisdom that suggests that the first firm is in a better position to make the research investment need not hold in a competitive environment. This occurs because if both firms invest in research, the firm with the net operating loss carryover makes more aggressive investment decisions following successful research.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132657805","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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