Role Of Market Power Research Articles

Picking winners in strategic emerging industries using government subsidies in China: the role of market power

This study explores the effects of government subsidies on company labour productivity in strategic emerging industries under conditions of market power in downstream and upstream markets. A sample of 1392 listed companies from emerging industries in China from 2006 to 2019 is used. Labour productivity will be lower in companies with high seller power. The positive effect of subsidies on labour productivity will be enhanced when firms possess higher seller power, whereas the positive effect of subsidies on labour productivity will be weakened when firms possess higher buyer power. Heterogeneity analysis shows that the role of market power is more evident for domestic enterprises compared to foreign investment companies. The mechanisms of picking winners based on government subsidies should take the effects brought by various degrees of market power into account.

Islamic bank margins in Indonesia: The role of market power and bank-specific variables

Islamic bank margins in Indonesia: The role of market power and bank-specific variables

Wage Setting and Passthrough: The Role of Market Power, Production Technology and Adjustment Costs

Wage Setting and Passthrough: The Role of Market Power, Production Technology and Adjustment Costs

Stagflationary Stock Returns and the Role of Market Power

Stagflationary Stock Returns and the Role of Market Power

Market power amplifies the price effects of demand shocks

In this paper, a model of competition in supply functions is used to analyse the relationship between market power and inflation. The model encompasses a range of market structures with Cournot and Bertand competition as polar cases. To the extent that inflation is driven by demand shocks, firms with market power are likely to respond by increasing margins, and thereby amplifying the inflationary impact of higher demand. This analysis is relevant to debates about the role of market power in recent US inflation. • Most macroeconomists don’t believe that market power has any effect on inflation. • An analysis of competition in supply functions shows that this is incorrect. • Our model spans a range of equilibria from Bertrand to Cournot.

Does corporate environmentalism affect corporate insolvency risk? The role of market power and competitive intensity

Little is known about the effects of green performance on corporate insolvency risk. This study examines the relationship between green performance and firm insolvency risk from both theoretical and empirical perspectives. Using a panel of 179 US firms included in the Newsweek Green Rankings and a system generalised method of moments estimation which generates endogeneity-robust regression coefficients, we found that firms with higher green performance are at lower risk of insolvency. We further postulate and provide theory-based empirical evidence that the nexus between green performance and insolvency risk is contingent upon other internal and external boundary conditions. Specifically, this research documents that the nexus between green performance and firm insolvency risk is moderated by market power as well as industry competitive intensity. The results of this study are robust across several sensitivity analyses.

The Market for Audit Services: The Role of Market Power

The market for audit services has been the subject of extensive academic research since the 1970’s. The prevailing view is that audit markets are characterized by tiers of suppliers (Big 4 vs. non-Big 4, and industry specialists vs. non-specialists) where the upper-tier suppliers produce and sell a systematically higher level of assurance, while competition among suppliers within tiers is essentially perfect and a uniform price prevails within the submarkets. We discuss three papers that challenge this orthodoxy. These papers argue and find that the price of an audit is essentially unique to each (auditor, client) pair and that this price depends on both audit firm size and client size. Furthermore, audit firm size is linked with the firm’s capital investments which enhance auditor efficiency and market power. We conclude that audit markets are atomistic and that local market power is an important determinant of audit prices and audit fees.

Market Concentration and Performance the Case of the U.S. Airline Industry

This paper investigates the role of market power in the US airline industry and its role in the profitability of the U.S. passenger airline sector. To examine this relationship, we propose a model that includes key financial indicators of airline performance. Our data set includes nine air carrier firms and quarterly data from the first quarter of 1980 through the fourth quarter of 2019. Our empirical findings under three assumptions for unbalanced panel estimation of the proposed regression model confirm that the declining concentration of market share in the industry improves industry competitiveness and contributes to air carrier firms’ profitability.

The role of market power in driving innovation and productivity: a firm-level study of emerging ASEAN

PurposeThe primary purpose of the study is to examine the role of market power in driving innovation and productivity of intangible intensive firms of eight emerging economies of the Association of Southeast Asian Nations (ASEAN-8).Design/methodology/approachThere is hardly any study on emerging economies that explored the causal chain of R&D–innovation–productivity, considering the role of market power in a structural model. Taking advantage of the availability of firm-level data and following the extended version of the Crépon, Duguet and Mairesse (CDM) model, we intend to fill the gap. The CDM model first explores the link between R&D and innovation, then the latter's impact on productivity. Besides, it captures sectoral heterogeneity and the differing roles of technological and institutional innovation on productivity.FindingsThe manufacturing firms that held a higher markup had a more significant contribution to driving innovation than services one. While institutional innovation affected productivity positively, technological innovation had the opposite impact. Nevertheless, firms' higher degree of monopoly, in general, worsened productivity outcomes. The estimated results are robust to a range of alterations.Practical implicationsThe study offers implications for the competition policy of ASEAN.Originality/valueThe sample of this study accounts for almost half of the world's best-performing emerging economies. Thus, the findings are likely to contribute to the thin literature on market power's role in driving innovation and productivity in the intangible economy of emerging markets.

Dark Matter in the Knowledge Universe: A Comment on its Distribution and the Role of Market Power in Information Space

Dark Matter in the Knowledge Universe: A Comment on its Distribution and the Role of Market Power in Information Space

The Market for Audit Services: The Role of Market Power

ABSTRACTThe market for audit services has been the subject of extensive academic research since the 1970s. The prevailing view is that audit markets are characterized by tiers of suppliers (Big 4 versus non-Big 4, and industry specialists versus non-specialists) where the upper tier suppliers produce and sell a systematically higher level of assurance, while competition among suppliers within tiers is essentially perfect and a uniform price prevails within the submarkets. We discuss three papers that challenge this orthodoxy. These papers argue and find that the price of an audit is essentially unique to each (auditor, client) pair and that this price depends on both audit firm size and client size. Furthermore, audit firm size is linked with the firm's capital investments, which enhance auditor efficiency and market power. We conclude that audit markets are atomistic and that local market power is an important determinant of audit prices and audit fees.

Innovative growth: the role of market power and negative selection

ABSTRACT This paper relies on register-based statistical data from Finland to measure broad research and development (R&D), organizational capital (OC) and information and communication technology (ICT) investments as innovation inputs in addition to formal survey-based R&D and CIS survey data on innovations. The linked panel data are appropriate for a comparison of low-market-share (small) and large-market-share (large) firms. We analyze the productivity growth and profitability of Finnish firms with varying market power. In contrast to high-market-share firms, low-market-share firms are characterized by low profit derived from new innovations. This study suggests that in addition to imitative growth, a ‘negative selection mechanism’ explains the high productivity growth relative to the low profits.

The uncertainty-investment relationship with endogenous capacity

This paper revisits the uncertainty-investment relationship with a real-option model. Unlike existing models, the firm chooses both timing and size of investment, hence we use a new composite measure of investment that takes into account both timing and size. With this modification, we show that investment is not necessarily a monotonically decreasing function of uncertainty (or volatility) as predicted by the existing literature. For most parameter value configurations, investment is initially an increasing function and subsequently a decreasing function of uncertainty. This result also holds with the newer Knightian measure of uncertainty. Comparative static analysis indicates that uncertainty is more likely to have a positive effect on investment when demand growth rate and demand volatility are low, and interest rate and operating cost are high. The effect also depends on the production technology; with decreasing-returns-to-scale technology it is more likely to be positive. Finally, it is shown that investment is more sensitive to uncertainty for decreasing-returns-to-scale technology, high cost of production capacity, low operating cost and less market power. While there is some empirical evidence in support of a non-monotonic uncertainty-investment relationship and the role of market power, the other implications of the model have not been empirically tested yet.

Market Power in Interactive Environmental and Energy Markets: The Case of Green Certificates

Markets for environmental externalities are typically closely related to the markets causing such externalities, whereupon strategic interactions may result. Along these lines, the market for Green Certificates is strongly interwoven in the electricity market as the producers of green electricity are also suppliers of Green Certificates. In this paper, we formulate an analytic equilibrium model for simultaneously functioning electricity and Green Certificates markets, and focus on the role of market power. We consider two versions of a Nash-Cournot game; a standard Nash-Cournot game where the players treat the market for Green Certificates and the electricity market as separate markets; and a Nash-Cournot game with endogenous treatment of the interaction between the electricity and Green Certificates markets with conjectured responses. One result is that a certificate system faced with market power may collapse into a system of per unit subsidies, as the producers involved start to game on the joint functioning of markets.

The role of market power in economic growth: an analysis of the differences between EU and US competition policy theory, practice and outcomes

The European Union has experienced weak economic performance over the past 15 years, compared to the United States. In order to restore investment, innovation, and therefore growth, the European Commission seeks to raise the level of static competition in all markets. The Commission’s economic policy is largely determined by its competition policy. This policy is derived from its doctrine on competition law, which regards the exercise of market power as a source of inefficiency and advocates that its effects should be banned. By contrast, the United States competition authorities, under the influence of the Chicago School, consider that market power is a necessary incentive to invest and a fair return on investment. Recent findings in economic growth theory, which state that increased competition intensity may harm endogenous innovation, provide a theoretical basis to support the United States approach and call for a review of European doctrine.

Asymmetric cost pass-through? Empirical evidence on the role of market power, search and menu costs

We estimate cost pass-through rates based on data for store-level retail prices and wholesale costs for up to 90 different brands of milk sold in 327 retail stores across Germany. The abundance of the data allows us to identify heterogeneity in pass-through across retailers and relate it to underlying explanatory factors such as retailer market power, measures of consumer search and menu costs. Results from a threshold-error-correction-process clearly provide empirical support for the ‘rockets and feathers’ phenomenon: prices increase more quickly than they decrease. In contrast to much of the existing literature, which explains the ‘rockets and feathers’ phenomenon as a result of retailers exercising market power, we find the opposite result: the degree of asymmetry in prices is negatively related to market power (decreases with the Lerner-Index). Our measure of (cross-product) search costs does not account for observable differences in asymmetric cost pass-through rates between products. The ‘rockets and feathers’ observation is better explained by product-specific differences in menu costs (‘mistake costs’) and costs associated with stock-outs which can lead to a loss of consumer goodwill.

Market Power in Interactive Environmental and Energy Markets: The Case of Green Certificates

Markets for environmental externalities are typically closely related to the markets causing such externalities, whereupon strategic interactions may result. Along these lines, the market for Green Certificates is strongly interwoven in the electricity market as the producers of green electricity are also suppliers of Green Certificates. In this paper, we formulate an analytic equilibrium model for simultaneously functioning electricity and Green Certificates markets, and focus on the role of market power. We consider two versions of a Nash-Cournot game; a standard Nash-Cournot game where the players treat the market for Green Certificates and the electricity market as separate markets; and a Nash-Cournot game with endogenous treatment of the interaction between the electricity and Green Certificates markets with conjectured responses. One result is that a certificate system faced with market power may collapse into a system of per unit subsidies, as the producers involved start to game on the joint functioning of markets.

Oil and food prices in Malaysia: a nonlinear ARDL analysis

The present paper analyses the relations between food and oil prices for Malaysia using a nonlinear autoregressive distributed lags (NARDL) model. The bounds test of the NARDL specification suggests the presence of cointegration among the variables, which include the food price, oil price and real GDP. The estimated NARDL model affirms the presence of asymmetries in the food price behavior. Namely, in the long run, we find a significant relation between oil price increases and food price. Meanwhile, the long run relation between oil price reduction and the food price is absent. Furthermore, in the short run, only changes in the positive oil price exert significant influences on the food price inflation. With the absence of significant influence of oil price reduction on the food price both in the long run and in the short run, the role of market power in shaping the behavior of Malaysia’s food price is likely to be significant.

Determinants of European freight rates: The role of market power and trade imbalance

This paper investigates the determinants of freight rates between six European countries and 47 partners. We show that the inward freight rates are, on average, 23% higher than for outward ones, indicating that the cost of repositioning empty containers is mainly carried by European importers. Moreover, we have broken down the freight rates into basic ocean freight and surcharges in order to analyze the impact of each explanatory variable on these two components. It appears that basic ocean freight depends mainly on factors that define the structure of shipping lanes, while surcharges are more time sensitive.

Comparative Advantage Under Monopoly: A Note on the Role of Market Power

We argue that it is the number of agents holding market power, rather than the presence of market power itself, that may force Ricardian economies into autarchy. We apply the concepts of monopoly equilibrium by Baldwin (1948) to the model of Cordella and Gabszewicz (1997) to show that, differently from the oligopoly case, trade always arises at a monopoly equilibrium whereas autarchy is never an outcome. As a consequence, monopoly Pareto-dominates oligopoly.