Sellers' inflation, profits and conflict: why can large firms hike prices in an emergency?

The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers' inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bot-tlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings calls and compile firm-level data to derive a three-stage heuristic of the inflationary process: (1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes. (2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures. (3) Labor responds by trying to fend off real wage declines in the conflict stage. We argue that such sellers' inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions. Policy should aim to contain price hikes at the impulse stage to prevent inflation from the onset.

Has Container Shipping Industry been Fixing Prices in Collusion?: A Korean Market Case

Purpose - The purpose of this study is to analyze the market power of the Korea Container Shipping Market (Intra Asia, Korea-Europe, and Korea-U.S.) to verify the existence of collusion empirically, and to answer whether the joint actions of liner market participants in Korea have formed market dominance for each route. Precisely, it will be verified through the Lerner index as to whether the regional market of Asia is a monopoly, oligopoly, or perfect competition. Design/methodology - This study used a Lerner index adjusted with elasticity presented in the New Imperial Organization (NEIO) studies. NEIO refers to a series of empirical studies that estimate parameters to judge market power from industrial data. This study uses B-L empirical models by Bresnahan (1982) and Lau (1982). In addition, NEIO research data statistically contain self-regression and stability problems as price and time series data. A dynamic model following Steen and Salvanes' Error Correction Model was used to solve this problem. Findings - The empirical results are as follows. First, lambda, representing market power, is nearly zero in all three markets. Second, the Korean shipping market shows low demand elasticity on average. Nevertheless, the markup is low, a characteristic that is difficult to see in other industries. Third, the Korean shipping market generally remains close to perfect competition from 2014 to 2022, but extreme market power appears in a specific period, such as COVID-19. Fourth, there was no market power in the Intra Asia market from 2008 to 2014. Originality/value - Doubts about perfect competition in the liner market continued, but there were few empirical cases. This paper confirmed that the Korea liner market is a perfect competition market. This paper is the first to implement dynamics using ECM and recursive regression to demonstrate market power in the Korean liner market by dividing the shipping market into Deep Sea and Intra Asia separately. It is also the first to prove the most controversial problems in the current shipping industry numerically and academically.

The discipline vs complement role of product market competition and market power: Evidence from real earnings management in an emerging market

We empirically study the role of product market competition and market power, discipline vs complement role, on real earnings management (REM) in Indonesia. Using 1800 firm-year observations from 2012 to 2020, we discover that the competition has an inverse association with REM, implying that product market competition plays a role in disciplining managers from engaging REM. Despite the negative association observed, we do not have evidence of any significant relationship between market power and REM. These findings hold for a set of robustness tests. We also evidenced that the discipline role of competition in REM will be more pronounced after the Economic ASEAN Community (EAC) period and pre-COVID-19 as well as in small firms and income-increasing firms. Although we cannot include corporate governance variable in our model due to data constrain, to the best of our knowledge, the current study will be the first study examining the role of market competition and market power on REM by considering the external shock, EAC period and COVID19, in emerging market such as Indonesia. This study implies that government and capital market regulators need to design and issue new laws or regulations that can encourage the internal governance structure to maximize the potential role of market power to mitigate REM. © 2023 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.

Bank performance before and during the COVID-19 crisis: Does efficiency play a role?

This study aims to evaluate the effect of efficiency and banking market structure on bank performance in the Middle East and North Africa (MENA) region. The relationship between efficiency and bank performance in the countries in the MENA region during the COVID-19 outbreak has not been examined. We use data for 225 banks in 18 MENA countries and find that bank performance strongly depends on the efficiency level and market power of banks. Furthermore, we investigate whether efficiency and market competition effects are significantly different between the two banking systems (Islamic and conventional). Our results indicate that efficiency and competition have a greater influence on the profitability level of conventional than Islamic banks. However, the efficiency impact is only marginally significant during the COVID-19 outbreak. Overall, our results suggest that managing a higher efficiency level leads to improved financial stability but, at the same time, increases the bank's appetite for taking higher risks. These findings deepen the existing notion that efficient banks are more resilient during global financial crises and emphasize the importance of bank regulatory reforms that boost efficiency in standing against the negative consequences of the recent (COVID-19) crisis.

Changes of China’s soybean import market power and influencing factors

Whether Chinese soybean importers can keenly grasp the changes of different source countries’ market power, will directly affects the safety and cost of soybean import. Based on the analysis of changes in China’s soybean import trade structure, this paper utilizes monthly data from January 2009 to December 2021, combines with the residual demand elasticity model, to compare and analyse the market power of the three major source countries. The results show that although the United States is no longer China’s largest soybean import country, its market power in China’s soybean import market has not been affected, while Argentina’s market power is gradually increasing. Although Brazil has grown into the first source of China’s soybean imports, it has only weak market influence. In addition, China, as the world’s largest buyer, doesn’t have market power. China’s soybean import price is mainly affected by futures prices, domestic soybean prices, international crude oil prices, Sino-US trade frictions and COVID-19 epidemic. © 2022 Informa UK Limited, trading as Taylor & Francis Group.

From Big Ag to Big Finance: a market network approach to power in agriculture

Critics charge that agriculture has reached an unsustainable level of consolidation and expropriation, as exemplified by the supply-chain breakdown of the COVID-19 pandemic. Simultaneously, advocates suggest the current system serves consumers well by keeping prices low and access to choices high. At the center of this debate rests a disagreement over how to compute market power to identify monopolies and oligopolies. We propose a method to study power across different sectors by using Social Network Analysis (SNA) to analyze key players, the presence of core-periphery structures, and agricultural consolidation. We test our market network approach to power through an analysis of the top ten pork powerhouses. We find that Big Finance is closely tied to Big Ag, and that key players limit the capacity for more peripheral actors, like growers, equipment producers, and regional banks, to engage in the network. We identify system level risk of collapse and suggest pathways for reform.

Internet penetration and airline pricing: Evidence from China

This paper investigates the impacts of increasing Internet penetration on airfares and price dispersion in the Chinese airline market. It is found that an increase in Internet penetration is associated with higher average airfares and lower price dispersion between the major Chinese carriers. It appears that the increase in Internet penetration seems to have strengthened the major airlines’ ability to maintain price stability, which is an indication of the existence mutual forbearance among the major carriers confirmed in other studies. Higher prices and lower price dispersion are mostly to occur in the most heavily markets. This research also finds that if carriers possess similar degree of market power, the price dispersion between the airline pair is smaller. The findings can generate important policy insights, and inform anti-trust policies in the post-Covid period, when more consumers use Internet for search and inquiries, and when big data and artificial intelligence technologies mature.

Measuring the Market Power of China's Medical Product Exports.

During the COVID-19 pandemic, medical products have been crucial to the global fight against the disease. As a major manufacturing country, China occupies an important position in the medical products field. However, China's terms of trade are not commensurate with its status as a major exporter of medical products. Therefore, studying China's market power in medical product exports has important practical significance for determining China's value chain position in the global market and then proposing policies and measures to enhance China's market power. The findings of this paper, utilizing HS 6-digit data from 1992 to 2020, illustrate that China's market power is only in limited medical product export markets. Accordingly, we propose countermeasures to enhance the market power of China's medical product exports.

Changing patterns of learning in oil and gas industry

Covid-19 pandemics have made innovations even more crucial and used them to take market power over competitors considering challenges that the world and global economy face. To achieve this goal, organizations need competent and high-expertise human capital as a workforce. That is one of the key reasons organizations increase their investment in developing, re-skilling and up-skilling their workforce via various learning and development programs and solutions compared to previous years. Given the direct impact of this process on the company's revenues, the following graph demonstrates the value flow generated (Figure 1): Organizations aim to ensure minimum time and efficient expenditure structures to achieve and build a learning system that delivers sustainable developmental solutions and interventions. Knowledge sustainability is a purpose, which focuses on various learning methods and solutions to make knowledge last and kept longer. A learning management system (shortly, LMS) is a platform that gathers all the learning solutions in one place and automates the process of learning to present development opportunities to end-users - learners/ employees. Digital learning enables users/employees to develop their competencies quickly, no matter the place and time and makes knowledge and information accessible for all, and gives an unlimited option to relearn, repeat and refresh anything already completed unlimitedly. Copyright 2021, Society of Petroleum Engineers

EU Competition Law: An Unaffordable Luxury in Times of Crisis?

The paper rejects arguments advanced in some quarters for a relaxation of EU competition policy to promote economic recovery. Economic theory and historical experience indicate that competition is likely to assist rather than impede recovery. While the Covid-19 induced recession necessitated increased State Aid, there is a serious risk that such aid will seriously distort competition within the internal market, given differences in the financial capacity of Member States to support businesses. The paper argues that policies designed to promote national champions and greater self-sufficiency are not justified and that action to secure reciprocal market access for EU exports is preferable to protectionist measures. An important lesson from the financial crisis is that actions based on immediate needs are a poor substitute for policy intervention based on sound economic analysis.

Regulation, banking competition and risk-taking behavior in the MENA region: policy implications for Islamic banks

Purpose This paper aims to investigate the impact of regulation and market competition on the risk-taking Behaviour of financial institutions in the Middle East and North Africa (MENA) region. Design/methodology/approach The empirical framework is based on panel fixed effects/random effects specification. For robustness purpose, this study also uses the generalized method of moments estimation technique. This study tests the hypothesis that regulatory capital requirements have a significant effect on financial stability of Islamic and conventional banks (CBs) in the MENA region. This study also investigates the moderating effect of market power and concentration on the relationship between capital regulation and bank risk. Findings The estimation results support the view that capital adequacy ratio (CAR) has no significant impact on credit risk of Islamic banks (IBs), whereas market competition does play a significant role in shaping the risk behavior of these institutions. This study report opposite results for CBs - an increase in the minimum capital requirements is followed by an increase in a bank's risk level, which has a negative impact on their financial stability. Furthermore, the results support the notion of a non-linear relationship between banking concentration and bank risk. The findings inform the regulatory authorities concerned with improving the financial stability of banking sector in the MENA region to set their policy differently depending on the level of concentration in the banking market. Research limitations/implications This study contributes to the literature on the effectiveness of regulatory reforms (in this case, capital requirements) and market competition for bank performance and risk-taking. In regard to IBs, capital requirements are less effective in requiring IBs to adjust their risk level according to the Basel III methodology. This study finds that IBs' risk behavior is strongly associated with market competition, and therefore, the interest rates. Moreover, banks operating in markets with high banking concentration (but not necessarily, low competition), will decrease their credit risk level in response to an increase in the minimum capital requirements. As a result, these banks will be more stable compared to their conventional peers. Thus, regulators and policymakers in the MENA region should restrict the risk-taking behavior of IBs through stringent capital requirements and more intense banking supervision. Practical implications The practical implications of these findings are that the regulatory authorities concerned with improving banking sector stability in the MENA region should proceed differently, depending on the level of banking market concentration. The findings inform regulators and policymakers to set capital requirements at levels that would restrict banks from taking more risk to increase their returns. They are also important for bank managers who should avoid risky strategies in response to increased regulatory pressure (e.g. increase in the minimum required capital level of 8%), as they may lead to an increase in the level of non-performing loans, and therefore, a greater probability of bank default. A future extension of this study will focus on testing the effect of bank risk-taking and market competition on the capitalization levels of banks in the MENA countries. More specifically, this study will investigates if banks raise their capitalization levels during the COVID-19 pandemic. Originality/value The analysis of previous research indicates that there is no unambiguous answer to the question of whether IBs perform differently than CBs under different competitive conditions. To fill this gap, this study examines the influence of capital regulation and market competition (both individually and interactively) on bank risk-taking behavior using a large sample of banking institutions in 18 MENA countries over 14 years (2005-2018). For the first time in this line of research, this study shows that the level of market power is positively associated with the level of a bank' insolvency risk. In others words, IBs operating in highly competitive markets are more inclined to take a higher risk than their conventional peers. Regarding the IBs credit risk behavior, this study finds that market power has a limited impact on the relationship between CAR and risk level. This means that IBs are still applying in their operations the theoretical models based on the prohibition of interest.

Imperfect food markets in times of crisis: economic consequences of supply chain disruptions and fragmentation for local market power and urban vulnerability.

As these lines were written, the Covid-19 pandemic crisis was continuing to threaten countries around the globe. The worldwide consensus that physical distancing is an effective instrument for mitigating the spread of the virus has led policymakers to temporarily limit the freedom of movement of people between and within countries, cities, and even neighborhoods. These public health-related restrictions on human mobility yielded an unprecedented fragmentation of international and national food distribution systems. Focusing on food retailing - usually being modestly oligopolistic - we take a micro-economic perspective as we analyze the potential consequences this disruption has for the physical as well as for the economic access of households to food at the local level. As the mobility constraints implemented substantially reduced competition, we argue that food retailers might have been tempted to take advantage of the implied fragmentation of economic activity by exploiting their temporarily raised market power at the expense of consumers and farmers. We illustrate our point by providing empirical evidences of rising wholesale-retail as well as farm-retail price margins observed during the Covid-19 crisis. Subsequently, we review existing empirical approaches that can be used to quantify and decompose the micro-economic effects of crises on food demand and supply as well as the size and structure of the market, costs of trade, and economic welfare. The employment of such approaches facilitates policymakers' understanding of micro-economic effects of public health-induced mobility restrictions on economic activity.