Competitive Bottleneck Research Articles

Open Banking: Between Cooperation and Competition

The emergence of financial technology companies (fintechs) has spurred expectations that they will lead to large-scale disintermediation in finance and significantly disrupt the banking industry. Regulators in several jurisdictions have supported their market entry through the adoption of open banking policies, whose purpose is to facilitate third-party access to banking data, subject to customer consent. Data access has been seen as a competitive bottleneck in the banking industry, while customers hold the ultimate ownership over their data. This paper aims to critically assess proclaimed promises of open banking by analysing existing barriers to entry and market-based collaborations between banks and fintechs as identified in the literature. Since the expected effects can vary depending on the regulatory model embraced, the paper also outlines the economic trade-offs of different regulatory solutions. Consequently, the paper may help regulators who are considering introducing or designing open banking policies.

Plasticity is a locally adapted trait with consequences for ecological dynamics in novel environments.

Phenotypic plasticity is predicted to evolve in more variable environments, conferring an advantage on individual lifetime fitness. It is less clear what the potential consequences of that plasticity will have on ecological population dynamics. Here, we use an invertebrate model system to examine the effects of environmental variation (resource availability) on the evolution of phenotypic plasticity in two life history traits—age and size at maturation—in long‐running, experimental density‐dependent environments. Specifically, we then explore the feedback from evolution of life history plasticity to subsequent ecological dynamics in novel conditions. Plasticity in both traits initially declined in all microcosm environments, but then evolved increased plasticity for age‐at‐maturation, significantly so in more environmentally variable environments. We also demonstrate how plasticity affects ecological dynamics by creating founder populations of different plastic phenotypes into new microcosms that had either familiar or novel environments. Populations originating from periodically variable environments that had evolved greatest plasticity had lowest variability in population size when introduced to novel environments than those from constant or random environments. This suggests that while plasticity may be costly it can confer benefits by reducing the likelihood that offspring will experience low survival through competitive bottlenecks in variable environments. In this study, we demonstrate how plasticity evolves in response to environmental variation and can alter population dynamics—demonstrating an eco‐evolutionary feedback loop in a complex animal moderated by plasticity in growth.

Pricing strategy for logistics service platforms with competition and user distance preference

AbstractIn practice, the demanders (customers) and providers (sellers) of logistics service platforms not only care about prices but also are sensitive to the spatial distance between each other (because longer distance would lead to longer service waiting time). We study the impacts of spatial distance preference on two competing logistics platforms' pricing strategies. Two groups of agents (demanders and providers) are required to pay the logistics service platform a fixed (registration) fees to gain access. We analyze two commonly seen scenarios in practice: (i) the single‐homing model—both demanders and providers can only join one of the platforms; (ii) the competitive bottleneck model—demanders (providers) can join only one of the platforms while providers (demanders) are allowed to join both platforms. We find that under the single‐homing setting, an increase in demanders' (providers') distance preference would lead to higher but lower (lower but higher) prices charged to demanders and providers, respectively, and higher profits of both platforms. Under the competitive bottleneck model, however, the price charged to demanders (providers) might decrease (increase) in demanders' (providers') distance preference. Finally, compared to the case in which both sides single homing, we find that allowing providers or demanders to join both platforms would decrease the profits of both platforms if users' distance preference is sufficiently low or high.

An Honorable Harvest: Universal Owners Must Take Responsibility for Their Portfolios

Despite a maturing industry of ESG professionals and coordinated efforts by shareholders calling for more responsible corporate behavior, we continue to see unabated climate and water crises, growing political instability, and continuing abuses of human rights in supply chains. The founder of a movement called The Shareholder Commons argues that to help business to address these systemic challenges, corporate responsibility must move beyond the company‐by‐company decision‐making model. An economy based on market competition cannot rely on individual businesses to adopt basic sustainability rules that take priority over profit. Critical sustainability boundaries must be implemented collectively to be effective.The crux of the problem is that although shareholder returns derive mainly from efficiency and productivity gains, they can also result from careless exploitation of common resources or powerless workers. And the competition for margin and capital makes it difficult for companies to recognize, let alone forgo, profitable exploitation. A sustainable economy demands that we help companies to distinguish between honorable and dishonorable profits, and to find ways to eliminate or offset the latter. The author holds out a model of capitalism that limits the availability of choices that exploit negative externalities and inequality while preserving the principles and practices that create value and a reasonable sharing of gains among all stakeholders.Universal owners—long‐term diversified investors—appear to be in the best position to formulate and enforce such a model, given the current design and practices of our capital markets. Such global investors have the incentive and power to engage in the collective decision‐making necessary for a sustainable economy. The power exerted by institutional investors through their allocation and stewardship of equity capital can be used to insist on more sustainable business practices. Because they are diversified across thousands of companies, universal owners can bypass the competitive bottleneck for margin and capital that holds sustainability back at the company level. These large investors can work together to establish authentic sustainability boundaries for the companies they invest in; and by so doing, they can allow us to leverage all the good work done to date on disclosure and ESG integration, and so realize a world in which companies continue to compete for profits, but also for a truly honorable harvest.

PLATFORM COMPETITION WITH ENDOGENOUS HOMING

AbstractWe consider two‐sided markets in which consumers and firms endogenously determine whether they single‐home, multi‐home, or exit the market. We find that the competitive bottleneck allocation in which consumers single‐home and firms multi‐home is always an equilibrium. In addition, we find equilibria with multi‐homing and single‐homing on each side of the market. However, unlike the standard pricing result where the side that multi‐homes faces higher prices, we find that lower prices coincide with multi‐homing: agents find multi‐homing more attractive when faced with lower prices. We also show that endogenous homing can induce straddle pricing which deters price undercutting between platforms.

Platform coopetition in two-sided markets

This paper explores the welfare effects of coopetition between two-sided platforms in the context of a competitive bottleneck, i.e., when participants on one side of the market (the buyers) choose at most one platform (i.e., singlehome), while participants on the other side (the sellers) can be active on both platforms (i.e., multihome). Under coopetition, when platforms set their sellers’ subscription prices cooperatively and buyers’ subscription prices non-cooperatively, platforms internalize that when they reduce their price on the seller side, this will harm the rival platform by making it less attractive to buyers, and through the indirect network effects, to sellers too. Therefore, coopetition leads the platforms to raise their subscription price for sellers compared to the case of full competition. However, as sellers become more valuable under coopetition and buyers exert a positive cross-group network effect on sellers, the competition for buyers is intensified, which leads to a lower price for buyers under coopetition than under competition. Coopetition can increase total surplus compared to full competition if additional participants on the singlehoming side join the market.JEL classification: D43, L13, L86.

Direito da concorrência e supermercados: como essas plataformas de dois lados podem trazer riscos aos consumidores?

Resumo O presente artigo propõe, à luz da evolução da tradicional visão antitruste dos supermercados varejistas, uma moderna análise antitruste do setor. Busca-se superar a ideia de que os supermercados figuram como agentes neutros de mercado, evidenciando que o poder de mercado no varejo supermercadista pode impactar negativamente na concorrência. Assim, o presente artigo estuda os supermercados como plataformas de dois lados com características de gargalo à concorrência. Nos termos da teoria da plataforma de dois lados, propõe-se que os supermercados sejam analisados como prestadores de serviços para consumidores finais e para os fornecedores, ressaltando que esses dois grupos distintos dependem do supermercado para o intermédio de transações, o que faz com que existam externalidades indiretas entre os dois grupos e, consequentemente, confere poder de barganha à plataforma. Por sua vez, nos termos da teoria dos gargalos à concorrência, defende-se que o supermercado varejista detém um poder monopolista de prover ou não o acesso de um grupo a outro. Tal proposta, como este artigo busca demonstrar, traz consigo um novo modo de compreensão das possíveis relações jurídicas dos agentes no varejo supermercadista, tanto em suas relações verticais quanto horizontais e diagonais.

Price disclosure by two-sided platforms

We consider two-sided platforms with the feature that some users on one or both sides of the market lack information about the price charged to participants on the other side of the market. With positive cross-group external effects, such lack of price information makes demand less elastic. A monopoly platform does not benefit from opaqueness and optimally reveals price information. By contrast, in a two-sided singlehoming duopoly, platforms benefit from opaqueness and, thus, do not have an incentive to disclose price information. In competitive bottleneck markets, results are more nuanced: if one side is fully informed (for exogenous reasons), platforms may decide to inform users on the other side either fully, partially or not at all, depending on the strength of cross-group external effects and the degree of horizontal differentiation.

An Honorable Harvest: It Is Time for Universal Owners to Take Responsibility for Their Portfolios

There is now an established industry dedicated to making business more responsible for its impacts on the environment and society. An alphabet soup of organizations promotes “sustainability,” “corporate social responsibility” and “ESG (environmental, social and governance) integration.” To date, the efforts have been insufficient to the task, as illustrated by our failure to address the climate and water crises, growing political instability and continuing shameful abuses of human rights in supply chains. (This is by no means a criticism of sustainability efforts — things could be much worse without them; it is instead a call to find a path to success for this vital movement.) This essay argues that current efforts are failing because they require individual companies to make difficult decisions about complex social and environmental issues. However, companies are a poor locus for these decisions because they are in competition with one another to provide a return on equity capital. Even without the pressure of competition, the calculation of optimal returns on equity is incommensurable with the calculation of what businesses must do to maintain a healthy environment and society: there is no rational way for a corporate director to compare a ton of carbon and a penny per share of profit. Businesses respond to this combination of competitive pressure and incommensurability by only implementing those sustainability measures that are compatible with optimizing returns on equity, rather than those necessary to actually solve the sustainability problem. In an economy based on market competition, we cannot rely on individual businesses to self-impose basic sustainability rules that take priority over profit. By their nature, these critical sustainability boundaries must be implemented collectively in order to be effective. While law and regulation would be the traditional avenues for addressing the broad societal concerns that comprise sustainability, governments themselves suffer from collective action issues in a global economy where jurisdictions compete for jobs and revenue. The ongoing failure of either business or government to systematically address these issues has created a crisis: business practices are eroding the environmental and social structures that undergird our civilization. If we cannot devise a method for implementing difficult decisions about carbon, inequality and other systemic issues, we will continue to just tinker around the edges of concerns that threaten human thriving, rearranging deck chairs as our global economy sinks. This essay argues that at this historical moment, the global investor community is the appropriate locus for the collective decision-making necessary for a sustainable economy. The power exerted by institutional investors through allocation and stewardship of equity capital can be used to insist on more sustainable business practices. Because they are diversified across thousands of companies, these investors can bypass the competitive bottleneck for margin and capital that holds sustainability back at the company level. I urge asset owners to consider these arguments, and to act to begin establishing sustainability parameters for all businesses, as our window of opportunity is rapidly closing.

Competition fluctuates across years and seasons in a 6-species-fish community: empirical evidence from the field

Competition not only occurs between species, but (probably more importantly) also among individuals within species, especially, for species occurring in high densities and when resources are limiting. Fluctuating densities and dietary overlap may account for massive ecological and evolutionary changes in fish communities. We sampled a mixed juvenile (0+ stages, being younger than 1 year of age) fish community at the Lower Rhine over three consecutive years, including native and newly established species (~ 64,000 captured individuals and ~ 4200 dissected fish). Our aim was to develop a new approach in which data on density, individual consumption rates, and diet overlaps (both intra- and interspecific) solely originating from the natural environment, were used and combined to estimate species-specific competitive strengths within and between seasons and species. The juvenile fish community at the food-limited Rhine was dominated by invasive gobies. Species-specific consumption rates decreased depending on the dietary overlap with other juveniles. Two invasive gobies (Neogobius melanostomus and N. fluviatilis) showed the greatest competitive abilities, followed by a third invasive Gobiid species (Ponticola kessleri) and the native Aspius aspius, a species utilizing an exclusive food source. Both other native species (Perca fluviatilis and Sander lucioperca) had the lowest estimates of food-related competitive strength, indicating that these species are forced into a juvenile competitive bottleneck by the invasive gobies, before they finally can develop into successful predators on gobies later in life. Our new analytical approach to measure dietary competitive strength among individuals provides a powerful tool to empirically study eco-evolutionary feedback dynamics in the field.

Exclusionary practices in two‐sided markets: The effect of radius clauses on competition between shopping centers

We analyze exclusionary conduct of platforms in 2‐sided markets. Motivated by recent antitrust cases, we provide a discussion of the likely positive and normative effects of exclusivity clauses, which prevent tenants from opening outlets in other shopping centers covered by the clause. In a standard 2‐sided market model, we show that exclusivity agreements are especially profitable for the incumbent and detrimental to social welfare if competition is intense between the 2 shopping centers. We argue that the focus of courts on market definition is misplaced in markets determined by competitive bottlenecks.

Platform Competition Under Network Effects: Piggybacking and Optimal Subsidization

A repeated challenge in launching a two-sided market platform is how to ignite the cross-side network effects to jumpstart adoption. Prior literature often addresses this issue by using pricing controls – a high price on one side to raise the margin and a low price on the other to attract users – or the “seesaw principle.” More recently, platforms are increasingly embracing non-pricing controls to accelerate user adoptions. Little is known, however, about the role of non-pricing controls and their interplay with pricing controls. In this research note, using a game-theoretic framework, we study “piggybacking” – i.e., expanding the focal market to recruit exclusive users from external networks – as a new and non-pricing control to launch platforms in conjunction with pricing controls. We first consider consumer-side piggybacking. In a standard “competitive bottlenecks” setting where consumers single-home and providers multi-home, we provide a rich set of novel insights into strategies that platforms use to monetize exclusive access to external users, with non-trivial characterizations of the interplay among piggybacking, cross-side network effects, and price competition. We identify necessary and sufficient conditions when piggybacking is profit improving and when it leads to a prisoner’s dilemma, depending on the piggybacking cost and strengths of cross-side network effects. Among others, we show that if the platforms’ equilibrium strategies were to subsidize consumers (when provider-side network effects are stronger than consumer-side network effects), piggybacking may intensify rather than ease price competition. In contrast, if the platforms’ equilibrium strategies were to subsidize providers (when provider-side network effects are weaker than consumer-side network effects), piggybacking may ease price competition. Interestingly, piggybacking reinforces the seesaw principle for the piggybacking platform. We provide a full characterization on such non-trivial equilibrium outcomes. We then consider provider-side piggybacking, and we show that the insights are qualitatively the same as consumer-side piggybacking except that the prisoner’s dilemma disappears if piggybacking providers multi-home. Managerial implications for platform practitioners are also discussed.

Two-sided platform competition with multihoming agents: An empirical study on the daily deals market

The Internet and mobile revolutions gave birth to many information-based platforms that have low entry costs with highly imitable business models. Exploiting granular deal-level data, we empirically study the U.S. daily deals promotion market, characterized by frequent multihoming of consumers and merchants leading to intense competition in over 150 regional markets between two major platforms, Groupon and LivingSocial. Consistent with the competitive pressure due to prevalent multihoming on the consumer side, we find little inter-platform difference in deal terms such as discount rate, price and value offered to consumers. On the merchant side, merchants that performed worse in the first promotion were more likely to switch to a competing platform for the next promotion. However, such platform switching brought little improvement in coupon sales in the subsequent promotion, particularly when the merchant switched from the market leader to a newer platform. Being first in a regional market provided an advantage to the platform in coupon sales, but that advantage quickly attenuated as promotions were repeated. Thus, in the presence of multihoming agents, the daily deal platforms appear to find it difficult to create a competitive bottleneck in either side of the market. The insight from our findings can be extended to other infomediary platform markets.

Evaluating potential competitive bottlenecks between invasive common carp and native bluegill and yellow perch

AbstractProcesses influencing fish recruitment are often highly complex and inherently difficult to understand. Invasive species may complicate recruitment through habitat and food web modifications resulting in competitive bottlenecks. Common carp Cyprinus carpio have been distributed worldwide, and their introductions have resulted in destructive effects on aquatic ecosystems and food web dynamics. Common carp are highly fecund, and high densities of age‐0 carp may occur in some years that may reduce invertebrate prey resources and adversely affect native age‐0 fishes. We used enclosures and field observations to examine potential effects of age‐0 common carp on growth and survival of age‐0 yellow perch Perca flavescens and bluegill Lepomis macrochirus. Yellow perch and bluegill were stocked into enclosures with and without common carp (31 fish/m3) using a substitution experimental design, and fish growth and survival and invertebrate prey resources were assessed. Common carp reduced growth of yellow perch but not bluegill and did not affect survival of either species in mesocosms. Next, we used patterns of common carp, bluegill, and yellow perch abundance and total length across 38 lake‐years to evaluate potential interspecific interactions in natural systems. Age‐0 common carp abundance was not negatively related to size or abundance of bluegill or yellow perch. However, adult common carp and age‐0 yellow perch abundance were inversely related, suggesting a potential competitive bottleneck. Thus, age‐0 common carp may suppress growth of yellow perch when prey is limited, but adult common carp may have larger effects than early life stages on native juvenile fishes.

Premigration Patterns of Growth, Condition, and Resource Use by the Spring-Spawned and Summer-Spawned Cohorts of Juvenile Bluefish in the Hudson River Estuary, New York

AbstractIn fish populations with multiple age-classes of similar size and close proximity, interactions between age-classes may be an important source of density-dependent population structuring if there is a disparity in competitive ability, creating a competitive bottleneck. However, intercohort competitive interactions within a single year-class have rarely been investigated and may have implications for recruitment success. Bluefish Pomatomus saltatrix produce at least two cohorts (spring- and summer-spawned) of offspring each year, and juveniles of this species are abundant in the lower Hudson River estuary, New York, during summer and early autumn. Our objectives were to evaluate the potential for a competitive bottleneck between these spring and summer cohorts by assessing the cohort-specific growth, condition, and patterns of resource use prior to the autumn migration in 2008 and 2009. The size advantage gained by the spring cohort resulting from earlier hatching dates was maintained throughout bo...

Deadly competition and life-saving predation: the potential for alternative stable states in a stage-structured predator-prey system.

Predators often undergo complete ontogenetic diet shifts, engaging in resource competition with species that become their prey during later developmental stages. Theory posits that this mix of stage-specific competition and predation, termed life-history intraguild predation (LHIGP), can lead to alternative stable states. In one state, prey exclude predators through competition (i.e. juvenile competitive bottleneck), while in the alternative, adult predators control prey density to limit competition and foster coexistence. Nevertheless, the interactions leading to these states have not been demonstrated in an empirical LHIGP system. To address this gap, we manipulated densities of cannibalistic adult cyclopoid copepods (Mesocyclops edax) and their cladoceran prey (Daphnia pulex) in a response-surface design and measured the maturation and survival of juvenile copepods (nauplii). We found that Daphnia reduced and even precluded both nauplii maturation and survival through depletion of a shared food resource. As predicted, adult copepods enhanced nauplii maturation and survival through Daphnia consumption, yet this positive effect was dependent on the relative abundance of Daphnia as well as the absolute density of adult copepods. Adult copepods reduced nauplii survival through cannibalism at low Daphnia densities and at the highest copepod density. This work demonstrates that predation can relax a strong juvenile competitive bottleneck in freshwater zooplankton, though cannibalism can reduce predator recruitment. Thus, our results highlight a key role for cannibalism in LHIGP dynamics and provide evidence for the interactions that drive alternative stable states in such systems.

Note on 'Competition in Two-Sided Markets'

We extend the models in ("Competition in Two-sided Markets" of Armstrong (2006, 'Rand Journal of Economics') by adding within-group externalities. In the monopoly and duopoly cases, positive within-group externalities reduce the price of the own group. Negative externalities have an opposite price effect. In the case of a competitive bottleneck, we show by examples that within a certain range of parameter values, a novel phenomenon arises that the platform attracts more agents from one of the groups compared with the social optimum.

Entry of Non-Financial Firms and Competition in the Retail Payments Market ((((((( )

We investigate the effects of a non-financial firm’s entry on competition in the retail payments market, from the perspective of duopoly between an incumbent and an entrant in conditions of vertical restraints. Considering the cross-platform externalities in payment processing, differentiated preferences for payment platforms, and competitive bottleneck on the consumer side, we derive the following results. When only the entry of a vertically integrated (or end-to-end service) provider is allowed, either all merchants choose to multi-home or no entry occurs, regardless of the regulatory requirement. On the other hand, if the entry of a downstream-only (or front-end service) provider is possible, a partial multi-homing equilibrium result can emerge for some conditions under which the entry of an end-to-end service provider does not occur. In addition, due to the lowered entry cost, the overall welfare is greater when the entry of downstream-only service is possible although the entire increase in welfare goes to the entrant. Without regulation, however, the vertically integrated incumbent does not voluntarily provide the back-end service to the entrant when the merchant’s benefit from the payments service is not sufficiently high. It suggests the need for proper regulatory measures to reach a socially desirable outcome from the new entry in the retail payments market.

Supermarket Power: Serving Consumers or Harming Competition

This paper analyses the sources of supermarket power vis-a-vis shoppers and independent brands. This power transforms leading supermarkets into vertically-integrated competitive bottlenecks that are able to restrict competition between brands (including their own ones) and reduce consumer welfare. However, competition enforcement has failed to address their bottleneck role and the negative consequences of their practices on dynamic competition (i.e., a market where the competitive process fosters innovation, quality and variety), the ultimate goal of competition policy. This paper proposes complementary regulatory and competition remedies to ensure that access to supermarket platforms and competition within them promotes fair dealing, consumer welfare and economic growth. It draws inspiration from the remedies enforced in other competitive bottlenecks such as CRSs, mobile communication networks, internet service providers, internet search engines and credit card networks.

Policy Framework and Practice Analysis of Serbian Commission for Protection of Competition

Paper conducts the analysis of day-to-day actions of Serbian Commission for Protection of Competition, highest antitrust national body, in its efforts to eliminate competitive bottleneck on markets it regulates. Also paper tries to locate bottleneck in Commission’s operations, since bottom line results in the previous three years come down to only two cases where this body effectively mandated fines.