Horizontal Market Structure Research Articles

The Heterogeneous Tax Pass-Through Under Different Vertical Relationships

Abstract A large body of literature has examined the impact of the horizontal market structure on the tax incidence on consumers. However, the extent to which the vertical market structure affects the tax pass-through—which might be particularly relevant in the presence of the double marginalisation problem—is an unexplored question. Using a confidential dataset of gas station contracts with a major Spanish refiner, in combination with their retail fuel prices and characteristics, we document that the pass-through of a tax on prices is about 38% higher in vertically integrated gas stations than in independent ones. Our estimates allow us to assess the impact on government revenue and emissions under different counterfactual market scenarios.

The EU Block Exemption and Horizontal R&D Agreements

We analyze the effect of the European Union Competition Authority’s block exemption towards R&D cooperatives in a horizontal market structure, valid as long as the combined product market share is not too large. Two less efficient firms attempt to catch up with a technological leader, and may use the safe harbour provided by the legislation. We consider when the incentives of the R&D-performing firms are aligned with those of consumers, and when increases in the market share limit improves welfare. We show that an effective policy within this framework might be elusive. The market share restriction must be set in order that it is optimal for firms to use the safe harbour, and that this leads to more R&D than under competition. Even in this case, further increases in the market share restriction can harm welfare. This has widespread implications for how the EU Competition authority should respond to calls for an increase in the market share restriction.

Bargaining in Vertical Relationships and Supplierss R&D Profitability

This paper explores the effect of bargaining in vertical relationships on the profitability of suppliers’ R&D investments. Studies on the relationship between R&D and firm profitability mostly concentrate on the impact of horizontal market structure and neglect vertical interac-tions. Building on theoretical and empirical evidence about the effects of bargaining in vertical relationships, the crucial determinants of a supplier’s bargaining power are identified as the market position and the degree of concentration in the buyer portfolio. With respect to R&D profitability the latter is expected to diminish returns from R&D, while the former is expected to increase it. The hypotheses are tested using a sample of 472 German manufacturing firms. The empirical findings support all hypotheses and highlight the importance of tak-ing a supplier’s bargaining power into account when estimating R&D profitability. The estimated effects are considerable: for an average R&D performing supplier an increase of R&D intensity in 2010 by a percentage point would reduce profits by about 14 % in 2012 given the supplier depends completely on the largest three buyers and does hold an average market share. Contrastingly, a monopolist R&D performing supplier with average buyer concentra-tion would experience a profit increase by 10 % in 2012.

Market Structure and Cost Pass-Through in Retail

We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three vertical structures: national brands, private label goods not manufactured by the retailer, and private label goods manufactured by the retailer. Our approach circumvents issues associated with internal firm prices and demonstrates that accounting for horizontal market structure is important for measuring the effects of vertical integration and reduced double marginalization on pass-through.

1 Moving Beyond Schumpeter: Management Research on the Determinants of Technological Innovation

Schumpeter’s conjecture that large monopolistic firms were the key source of innovation in modern industrial economies has been the underpinning for much work on the topic of innovation. In this review paper we consciously move beyond the Schumpeterian tradition of focusing on firm size and market structure as the primary determinants of innovation to identify a broader set of innovation determinants that have been investigated by the management literature. We make a distinction between innovative efforts and innovative output and for each of these outcomes we group the determinants of innovation into four broad headings—industry structure, firm characteristics, intra‐organizational attributes, and institutional influences. We examine four aspects of the industrial structure and how they influence innovation: the horizontal market structure which reflects the influence of competition and collaboration, as well as the role of buyers, suppliers and complementors. Under the rubric of firm characteristics, we consider the many externally observable attributes of a firm such as its size, scope, access to external sources of knowledge such as through alliances, and performance. Under the heading of intra‐organizational attributes we look at the inside of the firm, the firm’s organizational structure and processes, corporate governance arrangements including compensation and incentive structures, the backgrounds of managers, and organizational search processes. Finally, we consider two significant sets of institutional influences, the supply of science (wherein we also examine the nature and degree of science–industry relationships), and the appropriability regime. In each setting we try to structure the existing literature to identify the core theoretical mechanisms as well as empirical support for those mechanisms. We explicitly focus on the management literature in this area recognizing that the work of economists is being summarized in other such reviews. However, we have consciously tried to use terminology and organizing structures that should be familiar to both economists and management scholars and hope to encourage greater conversation and cross‐fertilization between these two groups. To facilitate this outcome we especially emphasize some areas where management literature has developed the most (e.g., alliances and networks) but then integrate the literature in these areas within the broader rubric of work in the economics tradition.

1 Moving Beyond Schumpeter: Management Research on the Determinants of Technological Innovation

AbstractSchumpeter’s conjecture that large monopolistic firms were the key source of innovation in modern industrial economies has been the underpinning for much work on the topic of innovation. In this review paper we consciously move beyond the Schumpeterian tradition of focusing on firm size and market structure as the primary determinants of innovation to identify a broader set of innovation determinants that have been investigated by the management literature. We make a distinction between innovative efforts and innovative output and for each of these outcomes we group the determinants of innovation into four broad headings—industry structure, firm characteristics, intra‐organizational attributes, and institutional influences. We examine four aspects of the industrial structure and how they influence innovation: the horizontal market structure which reflects the influence of competition and collaboration, as well as the role of buyers, suppliers and complementors. Under the rubric of firm characteris...

MARKET POWER, VERTICAL INTEGRATION AND THE WHOLESALE PRICE OF GASOLINE*

This paper examines empirically the relationship between vertical integration and wholesale gasoline prices. We use discrete and differential changes in the extent of vertical integration generated by mergers in West Coast gasoline refining and retailing markets to test for incentives to raise rivals’ costs. The research design allows us to test for a relationship between vertical integration and wholesale prices, controlling for horizontal market structure, cost shocks and trends. We find evidence consistent with the strategic incentive to raise competitors’ input costs. This suggests that vertical integration can have a significant impact on wholesale prices.

Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets

This paper examines vertical arrangements in electricity markets. Vertically integrated wholesalers, or those with long-term contracts, have less incentive to raise wholesale prices when retail prices are determined beforehand. For three restructured markets, we simulate prices that define bounds on static oligopoly equilibria. Our findings suggest that vertical arrangements dramatically affect estimated market outcomes. Had regulators impeded vertical arrangements (as in California), our simulations imply vastly higher prices than observed and production inefficiencies costing over 45 percent of those production costs with vertical arrangements. We conclude that horizontal market structure accurately predicts market performance only when accounting for vertical structure. (JEL L11, L13, L94)

The role of marketing channels in the determination of horizontal market structure: the case of fruit and Vegetable marketing by British growers

This paper is concerned with the influence of marketing of channels, particularly wholesale channels, on the nature of competition at grower level. A series hypotheses are set up which are tested through research on British growers and Wholesales of fresh produce undertaken in 1994. The results demonstrate a close association between size of growers marketing organization and channel strategy with large growers more likely to supply range of outlets including ones with more demanding requirements and with smaller growers more dependent on the use of wholesale market. This reflects the competencies of the different seizes of supplier organization and the results demonstrate how the existence of particulars type of channels in turn influences the structure of completion at growers level. The results also show how the nature of the grower- wholesaler relationship locks smaller growers into the dependence on supply of wholesale markets