Increased Market Power Research Articles

Price discrimination in merger review in South Africa: Implications of recent case precedent

ABSTRACT Mergers have the potential to give firms access to more data from which to draw insights about consumers. This may help firms to better discern which consumers are price insensitive or captive, or exhibit behavioural biases, that they can exploit by charging them higher prices or nudging them towards higher priced options. Based on recent case precedent, we believe that the transfer or sharing of data or techniques in mergers involving price-discriminating firms may be sufficient for meeting the requirement of merger-specificity without there needing to be an increase in market power. Recent local case precedent also provides insight into when mergers impacting on just a small group of consumers are likely to matter. It suggests that the competition authorities in the country should be more concerned where consumers are vulnerable and where access to the services/products is particularly important to this group.

The empirical measurement of competition and digitalization for the banking sector of Kyrgyzstan: Impacts of efficiency, profitability, and stability

This study investigates the competitive dynamics and digitalization within Kyrgyzstan's banking sector. The study analyzes the interplay between bank competition, digitalization, profitability, and stability using the two-step Generalized Method of Moments. Banking competition is assessed from 2012 to 2022 via the Lerner Index and the Boone Indicator. Furthermore, a novel method is employed to estimate the bank digitalization index based on the System Dynamics Approach. Findings indicate a competitive landscape marked by monopolistic competition, where digitalization enhances operational efficiency and competitive advantage. However, increased market power inversely affects digital adoption, suggesting monopolistic banks innovate less than their competitive peers. Further, the study highlights that intensified competition and digital adoption may encourage riskier bank behaviors, aligning with competition-fragility theory. Digitalization improves profitability, advocating for banks to adopt innovations to surpass competitors and improve financial performance. Policymakers are advised to foster a balanced competitive environment that encourages innovation without compromising bank stability.

Skilled Immigration, R&D Concentration, and Industry Consolidation

Abstract We demonstrate a novel link between skilled immigration restrictions, corporate innovation, and industry consolidation. Binding restrictions on H1B visas are a shock to firms’ R&D labor supply, leading firms to shift R&D expenditures and employees overseas. Organizationally and financially constrained firms are less able to adjust to the restrictions. They reduce basic research and patenting, are less able to acquire other firms for intellectual property, and are more likely to exit. Industry concentration and firm-level markups increase when firms are better able to adjust. This increase in market power is an unintended consequence of skilled immigration restrictions.

The Influence of Demand Fluctuation and Competition Intensity on Advantages of Supply Chain Dominance

We studied a supply chain consisting of multiple suppliers and multiple retailers. We use the Cournot–Stackelberg game, the Market–Stackelberg game, and the Market–Nash game to simulate the situation where the upstream seller’s market dominance power gradually decreases while the downstream buyer’s market power increases. The equilibrium decision and supply chain performance under the three models are compared and analyzed, as well as their responses to external market changes such as demand fluctuation and market competition intensity. The research shows that (1) in a seller-dominated supply chain, the increase in buyer power reduces market equilibrium production and wholesale price; (2) in the face of strong demand fluctuations, equivalent power between upstream and downstream can contribute to the stabilization of production and wholesale prices; (3) when market demand fluctuation is small, market power brings a higher profit level, and supply chain participants would like to actively compete for market power. However, when the demand fluctuates greatly, the profit advantage brought by market dominance is no longer significant, and there is no need to spend much to fight for market dominance; (4) the fierce competition of upstream suppliers will induce upstream to give up the competition for market dominance, and make the market power less attractive to downstream retailers. While the fierce horizontal competition downstream will stimulate both suppliers and retailers to actively compete for market power, (5) sufficient market competition will improve total supply chain profit, so encouraging competition is conducive to the overall economic development of society.

Sectoral dynamics of industrial policy in a two-sector economy: the case of Korea’s heavy and chemical industry (HCI) promotion (1973–1979)

This study explores the impact of state’s industrial policy on sectoral capacity utilization and growth in total output in the context of the Korea’s Heavy and Chemical Industry (HCI) promotion (1973–1979). Using a Kalecki-Steindl framework within a two-sector open economy, the study first finds that primary industrial policy instruments—preferential interest rates and export promotion regime—have a positive effect on capacity utilization (aggregate demand) and economic growth, but unbalanced sectoral dependence undermines the effect of industrial policy. Second, the increased market power of firms in the targeted sector has a dual impact on the sectoral capacity, depending on the productivity growth characteristics of each sector. Third, the industrial policy regime is highly susceptible to adverse external price shocks. These findings are consistent with the Korean growth experience during the HCI promotion period in which chaebols (big business groups) flourished, and the economy suffered from stagflation and idle capacity in the final stage of HCI promotion.

MARKET POWER AND BANKING FAILURE IN WAEMU ZONE: AN EMPIRICAL STUDY THROUGH GMM ESTIMATOR

This paper examines the relationship between market power and default risk for WAEMU banks. We use a dataset of 72 WAEMU banks from 2013 to 2020. The econometric results, after applying the system GMM estimator of Blundell and Bond (1998), indicate that bank concentration increases bank default risk. However, the test of non-linearity, through the introduction of the quadratic term of the concentration measure into the model, shows that above the 83% concentration threshold, an increase in market power could be favorable to banking stability. This study, therefore, recommends that monetary authorities exercise caution in their efforts to promote competition.

Incorporating privacy considerations into EU data-driven merger review

ABSTRACT In recent years, large digital companies have been gobbling up hundreds of smaller highly innovative firms involved in the collection and the processing of data. Some regulators, academics and practitioners have expressed concerns that Big Tech might use the increased market power and the greater concentration of consumers’ personal data stemming from data-driven mergers to harm consumers in the form of lower privacy protection. They wonder whether and to what extent the EU Commission and/or national competition authorities should take into account data protection considerations when reviewing transactions under the Merger Regulation and/or national merger control rules. The Commission’s decisional practice points towards three possible routes for integrating privacy concerns into competition analysis. Given their respective shortcomings, we explore the possibility of using the German Federal Cartel Office’s line of reasoning in its Facebook decision as a model for the incorporation of privacy considerations into EU data-driven merger analysis.

Is market power the cause of asymmetric pricing in China's refined oil market?

The asymmetric response of Chinese refined oil prices to crude oil prices is essentially an issue of economic efficiency, and the collusion of the oil oligarchs is not conducive to the market-oriented reform and economic sustainability. The purpose of this paper is to test whether the prices of refined oil products in China does indeed have the asymmetric fluctuations of “rising more and falling less”, and to analyze whether there are unreasonable pricing behaviors colluding among oil companies. We first examine the relationship between refined oil prices and the crude oil price by applying the NARDL using the monthly data from June 2000 to May 2021, and then designs a two-stage regression process based on the EGARCH model to check whether the asymmetric pricing is the result of the market power formed by the oligopolistic collusion. The results show that the asymmetric reaction of gasoline and diesel prices to crude oil prices in China is basically the same. Only the long-run asymmetry has been confirmed while the short-run asymmetry has not passed the test. The long-term equilibrium price amid fluctuations in Chinese refined oil prices is slowly being pulled higher, most likely due to the increased market power of oil companies. Long term asymmetry means that the oligopoly market equilibrium is approaching monopoly. The cause is in the refining segment of refined oil, not in the retail segment because the EGARCH model has only successfully identified the market power in the refining sector. The joint tests indicate that the oil oligarchs may have passed the cost information, which is conducive to raising prices in the long term, to the price regulators, and there is an unreasonable part of China's refined oil prices that undermine market efficiency.

What drives financial stability? the nexus between market power and bank efficiency within the East African Community

ABSTRACT The paper examines the joint effect of market power and different types of bank efficiency on financial stability across 5 countries within the East African Community. Unlike existing studies which have employed efficiency in a broad way, it is decomposed into five different types, that is, technical, pure technical, scale, cost and revenue efficiency. Using a two-step system GMM on 149 banks with 1,805 observations over the period 2001–2018, empirical findings reveal that the joint effect of market power and bank efficiency is critical on financial stability and the effect varies with the specific type of efficiency being explored. Increased market power is observed to have a direct positive effect on bank stability. With respect to bank efficiency, cost and revenue efficiency have a positive significant effect with bank stability while the effect of technical, pure technical and scale efficiency is insignificant. In overall, concentrated banks with higher cost and revenue efficiency are more stable compared to the inefficient banks. The findings highlight that an eclectic policy to ensure a trade-off between bank concentration and competition should be ensured by the bank regulators.

Financial Innovation and Restriction Hypothesis in the Banking Industry: Evidence from ASEAN- 5

This study investigates the financial innovation impact on bank market power in ASEAN banking from 2008 to 2018. It uses income diversification as a representative of financial innovation. The impact of countries’ development of financial innovation on market power is measured by the number of ATM, internet, and cellular phone users. The data panel regression model reveals that diversified banks may enjoy higher market power. This result rejects the banking restriction activity hypothesis, which states that a bank that diversifies its income stream results in increased competition. A higher number of available ATMs and more internet users lowers the percentage disparity of price and marginal cost and consequently increases the market competitiveness. Nevertheless, an increasing number of cellular users in the country increases market power. Conjecturally, more people use the online bank platform on their cellular phones, which creates a greater flow of fees to the bank.

Product Market Competition and its Implications for the Australian Economy*

This paper documents firm mark‐ups and competition in Australia, and their impact on productivity, using administrative data. I find that mark‐ups increased by around 5 per cent since the mid 2000s, less than previously documented for Australia and slightly less than documented for the average advanced economy. While part appears to reflect technological change, part appears to reflect an increase in market power. This increase appears to explain part of the slowdown in productivity growth observed in Australia over the past decade, by slowing the efficient reallocation of resources from low productivity to high productivity firms.

Mergers and market power: evidence from rivals' responses in European markets

AbstractWe analyze the effects of M&A on the markups of non‐merging rival firms across a broad set of industries. We exploit expert market definitions from the European Commission's merger decisions to identify relevant competitors in narrowly defined product markets and estimate markups as a measure of market power. Our results indicate that rivals increase their markups after mergers. Consistent with increases in market power, the effects are particularly pronounced when pre‐merger concentration is high, when competitors are few, and when relevant markets are national. Merger rivals also reduce their employment, sales, and investment, whereas their profits increase.

Does Amazon Exercise Its Market Power? Evidence from Toys“R”Us

Since its founding, Amazon has established a reputation for being consumer friendly by consistently offering lower prices than its market position would seem to allow. However, recent antitrust concerns about dominant online platforms have revived questions about whether Amazon’s growing market share threatens consumer welfare. Given its reputation, regulators have proposed a new focus on conduct unrelated to prices. We ask whether such a move is premature. Using the sudden and unanticipated US exit of Toys“R”Us as a natural experiment, we find that Amazon’s toy prices on its US site increased by almost 5 percent in the wake of the exit relative to similar products and to toys on its Canadian site. Thus, despite Amazon’s long-standing reputation, it may exploit increases in market power in traditional ways as competing retailers cease operating.

Variation in the competition − Efficiency nexus: Evidence from emerging markets

This study documents a large cross-country variation in the relationship between bank competition and efficiency in the context of 24 emerging markets. On average, higher market power is associated with greater bank efficiency, but an increase in market power has a more substantial impact in countries with stricter capital regulation, better market discipline, greater official disciplinary power, more developed financial markets, lower levels of bank branch penetration, and lower credit information availability.

Central Bank Policies and Market Power Over the Business Cycle in Africa

This article empirically examines the impact of the business cycle on the relationship between individual central bank policies and market power. We present a representative sample of 52 African economies over the period 2006–2018. We find that monetary, macro-prudential and central bank independence policies increase market power. The study found that, in the long run, market power reacts positively to changes or adjustments made to a central bank policy framework. We show that the individual central bank’s policy framework increase market power, when interacted with business cycle. JEL Codes: E3, E5, E61, G21, L10, L51, M21

The case against green antitrust

ABSTRACT The case for a greener antitrust is weak and flawed. It is largely abstract, hypothetical, legalistic, somewhat emotive and lacks supporting evidence. Its proponents claim that the European Commission’s enforcement of Article 101 TFEU blocks efficient industry-initiated cooperation to improve sustainability. But as is shown, this more permissive approach will lead to increased market power, supra-competitive prices and greater industry profits, and is unlikely to achieve greater investment in and the faster adoption of green technologies than competition.

Do public environmental concerns promote new energy enterprises' development? Evidence from a quasi-natural experiment

We examine whether the public environmental concerns promote the development of new energy enterprises through a quasi-experiment China's extreme event of 2011 when the PM2.5 Surge incident escalated public environmental concerns. After this incident, the market power of new energy enterprises in severely polluted regions became 108% higher than that in the mildly polluted regions. It implies that public environmental concerns promote the development of new energy enterprises. This observation is limited to non-state-owned companies, companies without political connections, and regions without new energy subsidies. This increased market power of new energy enterprises with increasing public environmental concerns was because of sales increase instead of reduced non-operational costs. Overall, this study answers several interesting questions associated with the increasing public environmental concerns and the rapid development of energy enterprises.

Analysis of farmers’ market power in the value chain of Arabica coffee in Lam Dong Province, Vietnam

The market that operates effectively will contribute to actors’ profit and welfare in the coffee value chain conversely if the market is affected by imperfect problems. Suppose the value chain lacks market news, short-term storage, information for product and processing, quality check, and market power. In that case, implied chain actors’ profit and welfare will not be reached. A new method can estimate market power by Lerner index through the stochastic cost frontier once the inputs data price is unavailable and the existence or non-existence of constant returns to scale. So this approach is applied to evaluate farmers’ market power in the value chain of Arabica coffee in Lam Dong Province, Vietnam. Primary data were collected through interviews with 200 farmers Da Lat, Lac Duong, Lam Ha, and Don Duong of Lam Dong Province. The estimated results of the market power and Lerner rate are 0.001. This index indicates that the local coffee market is perfect competition. So the coffee growers do not have market power. The RTS index of 0.56 (less than one) illustrates that farmers’ Return To Scale (RTS) is decreased. Therefore, coffee farmers should link together to establish cooperative that increases market power in price negotiation and coffee consumption.

Bank Consolidation, Interest Rates, and Risk: A Post-Merger Analysis Based on Loan-Level Data from the Corporate Sector*

ABSTRACT In this paper, we analyze the bank merger between DnB and Gjensidige Bank in 2003, ranked by market share as number one and number three in the Norwegian bank market. Focusing on loans to firms, our difference-in-differences analysis shows no increase of concentration of new loans. The concentration in affected markets (markets where both merging parties were present) developed similar to unaffected markets. Moreover, the interest rate tended to be lower in the affected markets relative to unaffected markets, but this relationship is weak and not statistically significant. The merger also affected the riskiness of loans only marginally. These weak effects could be the result of efficiency gains in the form of lower costs being pass-through to customers, and the increased market power (and consequently higher interest rates) canceled each other out. The remedial measures imposed by the Norwegian Competition Authority on the two merging parties are also likely to explain some of the modest effects of the merger. The weak effects are largely coincident with international literature showing the effects of mergers and acquisitions in the banking sector to be modest.

Effects of Chain Affiliation in the Movie Theater Industry

In this paper, I empirically study the effect of chain affiliation on product variety and price in the movie theater industry. Using longitudinal data on Korean movie theaters, I find that movie variety in a theater increases by 3.2–5.5% after the theater joins a chain. Admission price, however, does not change after chain affiliation. These findings imply that consumers may benefit from the growing dominance of chain-affiliated theaters in recent decades. The results also suggest that the regulatory authorities should carefully examine the trade-off between the increase in market power and efficiency gains when evaluating the implications of chain affiliation.