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on Industrial Competition |
| By: | Thierry Magnac (Toulouse School of Economics); Pierre Dubois (Toulouse School of Economics) |
| Abstract: | We construct a tractable structural dynamic model of consumption, purchase and stocks by consumers for whom stockpiling is unobserved and for whom preferences are isolastic and affected by independent and identically distributed shocks. Consumers purchase in stores which they meet randomly and which are supposed to maximize short run profits. We show that a two-price mixed strategy by stores satisfies conditions for an equilibrium in which consumers and stores coordinate their expectations on this stationary solution. We derive a simple and tractable estimation method using log linearized demand equations and equilibrium conditions. We estimate parameters using scanner data registering soda purchases by French consumers during 2005-2007. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:451&r=com |
| By: | Möllers, Claudia; Normann, Hans-Theo; Snyder, Christopher M. |
| Abstract: | When an upstream monopolist supplies several competing downstreamfirms, it may fail to monopolize the market because it is unable to commit not to behave opportunistically. We build on previous experimental studies of this well-known commitment problem by introducing communication. Allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the Cournot level (observed in the absence of communication) halfway toward the monopoly level. Allowing all three firms to chat together openly results in complete monopolization. Downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them. A simple structural model of Nash-in-Nash bargaining fits the pattern of shifting surpluses well. Using third-party coders, unsupervised text mining, among other approaches, we uncover features of the rich chat data that are correlated with market outcomes. We conclude with a discussion of the antitrust implications of open communication in vertical markets. |
| Keywords: | commitment,communication,experiments,vertical restraints |
| JEL: | L42 K21 C90 C70 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:226&r=com |
| By: | Pieter Gautier (VU University Amsterdam, the Netherlands); Bo Hu (VU University Amsterdam, the Netherlands); Makoto Watanabe (VU University Amsterdam, the Netherlands) |
| Abstract: | This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. We consider two representative business modes of intermediation that are widely used in real-life markets: one is a middleman mode by which an intermediary holds inventories which he stocks from sellers for the purpose of reselling to buyers; the other is a market-making mode by which an intermediary offers a platform for buyers and sellers to trade with each other. In our model, buyers and sellers can simultaneously search in an outside market and use the intermediation service. We show that a marketmaking middleman, who adopts the mixture of these two intermediation modes, can emerge in a directed search equilibrium. |
| Keywords: | Middlemen; Marketmakers; Platform; Directed Search |
| JEL: | D4 G2 L1 L8 R1 |
| Date: | 2016–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20160060&r=com |
| By: | Raul V. Fabella (School of Economics, University of the Philippines Diliman; National Academy of Science and Technology) |
| Abstract: | The economic catch-up of the East Asian miracle economies went hand-in-hand with the emergence and even dominance of large private or quasi-state business groups such as the Zaibatsus in the pre-WWII and the Keiretsus of the post-WWII Japan, the Chaebols of South Korea and the Taipan-led business empires of South and South East Asia. The dominance of the so-called Robber Barons in the Gilded Age of the USA catch-up era (1870-1900) was of the same genre. The natural vent for size among firms, following the Williamson make or buy logic, manifests itself as vertical integration in large economies; in small economies, it manifests itself as horizontal integration or conglomeracy. The motivations are underdeveloped factor mainly capital and insurance markets. Weak public ordering also motivates size as firms to vertically integrate into private ordering to resist official and unofficial predation. Conglopolistic competition, the competition among conglomerates in many markets, is largely in the non-traded goods sectors where foreign competition is not felt and market saturation is quickly attained. We give show how conglopolistic competition is welfare-improving and give examples of how it boosts the collective action capacity of the weak Philippine state. The dynamism of the Philippine Service sector is due to lively conglopolistic competition which in turn comes from relatively free entry (apart from large capital cost) in these sectors. It is imperative to attract conglopolistic competition in the traded goods sector especially in industrial agriculture. We identify fragmentation of farm land and the 5-hectare ownership ceiling as the one barrier preventing the entry of conglopolistic competition in agriculture. |
| Keywords: | Conglomerates, horizontal integration, small emerging markets, conglopolism, non-traded goods sector |
| JEL: | L22 L25 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:201605&r=com |
| By: | Chen, Yongmin; Pan, Shiyuan; Zhang, Tianle |
| Abstract: | We present a model of cumulative innovation where firms can conduct R&D in both a safe and a risky direction. Innovations in the risky direction produce quality improvements with higher expected sizes and variances. As patentability standards rise, an innovation in the risky direction is less likely to receive a patent that replaces the current technology, which decreases the static incentive for new entrants to conduct risky R&D, but increases their dynamic incentive because of the longer duration---and hence higher reward---for incumbency. These, together with a strategic substitution and a market structure effect, result in an inverted-U shape in the risky direction but a U shape in the safe direction for the relationship between R&D intensity and patentability standards. There exists a patentability standard that induces the efficient innovation direction, whereas R&D is biased towards (against) the risky direction under lower (higher) standards. The optimal patentability standard may distort the R&D direction to increase the industry innovation rate that is socially deficient. |
| Keywords: | cumulative innovation, patentability standards, R&D intensity, R&D direction, rate of innovation, innovation direction |
| JEL: | L1 O3 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73180&r=com |
| By: | Alexandre Croutzet; Pierre Lasserre |
| Abstract: | There are many instances where property rights are imperfectly defined, incomplete, or imperfectly enforced. The purpose of this normative paper is to address the following question: are there conditions under which partial property rights are economically efficient in a renewable resource economy? To address this question, we treat the level of completeness of property rights as a continuous variable in a renewable resource economy. By design, property rights restrict access to the resource, so that they may allow a limited number of firms to exercise market power. We show that there exists a level of property rights completeness that leads to first-best resource exploitation; this level is different from either absent or complete property rights. Complete rights are neither necessary nor sufficient for efficiency in presence of market power. We derive an analytic expression for the optimal level of property rights completeness and discuss its policy relevance and information requirements. The optimal level depends on i) the number of firms; ii) the elasticity of input productivity and iii) the price elasticity of market demand. We also find that a greater difference between the respective values of input and output requires stronger property rights. In fact, high profits both imply a severe potential commons problem and may be the expression of market power; strong property rights limit the commons problem; their incompleteness offsets market power. Biology also impacts the optimal quality of property rights: when the stock of resource is more sensitive to harvesting efforts, optimal property rights need to be more complete. |
| Keywords: | Institutions; property rights; entry; market power oligopoly; common access, |
| JEL: | K L1 Q2 Q3 |
| Date: | 2016–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2016s-39&r=com |
| By: | Thierry Mayer; Marc Melitz; Gianmarco Ottaviano |
| Abstract: | We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations. In response to positive demand shocks, those French firms skew their export sales towards their best performing products; and also extend the range of products sold to that market. We develop a theoretical model of multi-product firms and derive the specific demand and cost conditions needed to generate these product-mix reallocations. Our theoretical model highlights how the increased competition from demand shocks in export markets-and the induced product mix reallocations-induce productivity changes within the firm. We then empirically test for this connection between the demand shocks and the productivity of multi-product firms exporting to those destinations. We find that the effect of those demand shocks on productivity are substantial-and explain an important share of aggregate productivity fluctuations for French manufacturing. |
| Keywords: | Multiproduct Firms;Productivity;Trade |
| JEL: | F1 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2016-17&r=com |
| By: | David Baqaee (London School of Economics and Political Science) |
| Abstract: | I show how the extensive margin of firm entry and exit can greatly amplify idiosyncratic shocks in an economy with a production network. I show that input-output models with entry and exit behave very differently to models without this margin. In particular, in such models, sales provide a very poor measure of the systemic importance of firms or industries. I derive a new notion of systemic influence called exit centrality that captures how exits in one industry will affect equilibrium output. I show that exit centrality need not be related to an industry’s sales, size, or prices. Unlike the relevant notions of centrality in standard input-output models, exit centrality depends on the industry’s role as both a supplier and as a consumer of inputs, as well as market structure. I show that, unlike competitive models, vanishingly small industries can have arbitrarily large effects on equilibrium outcomes. In this sense, the network can amplify shocks in a way that standard input-output models cannot. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:402&r=com |
| By: | Christoph Kleineberg (Leuphana University Lueneburg, Germany); Thomas Wein (Leuphana University Lueneburg, Germany) |
| JEL: | K21 L12 L42 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:355&r=com |
| By: | Danial Asmat (Antitrust Division, U.S. Department of Justice) |
| Abstract: | This paper formulates a theory of collusion with learning-by-doing and multiproduct competition and tests it with data from an explicit cartel. The model shows that collusion is harder to sustain on a new product generation, where learning is high, than an old generation, where learning is low. Collusion on the old generation shifts demand toward the new generation, raising its output. Empirical analysis exploits variation between cartelization and competition in the DRAM market to identify counterfactual quantities and prices. Consistent with the model, cartel firms cut output of older generations by up to 50% and increased output of newer generations manifold. |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:doj:eagpap:201604&r=com |
| By: | Arne Neukirch (Leuphana University Lueneburg, Germany); Thomas Wein (Leuphana University Lueneburg, Germany) |
| Abstract: | Do we have effective competition between the gasoline's big five oligopolists (Aral, Shell, Esso, Total and Jet) and fringe gasoline stations? Using 2014 Market Transparency price data from 66 cities with populations between 60,000 and 100,000, we analyze which brands lead price increases, the first average price mark-up in the evening, and the trend on price increases until midnight. Furthermore, we measure the response time it takes for competitors to react to these price increases, and how much prices change from the beginning to the end of a day. By watching local activities of the big brands, it is possible to measure how smaller businesses, such as Jet or independent retailers, react to Aral's and Shell's price changes. Multivariate estimations allows to control for gasoline type (regular or diesel), school holidays, weekends, weekdays, location -such as East or West Germany-, wholesale and starting prices. Descriptive results show the typical patterns. Aral (or Shell) will start a price increase round, and then Shell (or Aral) will more or less immediately follow. Total, Esso and Non-Oligopolists react within one or two hours. Jet behaves more as an "outsider" with later reaction times and lower price mark-ups. Multivariate estimation indicates that the single cause "price change by competitors" is less important and nearly irrelevant for Jet. |
| Keywords: | Market power, collusive behavior, gasoline market |
| JEL: | L13 L41 L81 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:363&r=com |
| By: | Ben Dkhil, Inès |
| Abstract: | The persistence of the market power in the fixed telecommunication markets in both developed and developing economies is due to the technical and economic features of this industry. This paper provides an overview of these characteristics and changes. It also suggests a comparative critical survey of the access pricing theories that are “the key” to the transition to the competition in the fixed telecommunication segment. Through this overview, we aim to underline among that the central role that the regulation should play to ensure the establishment of sustainable competition in the fixed telecommunication markets. |
| Keywords: | Essential facilities, bottleneck, local loop, network externalities, economies of scale and scope, sunk costs, the marginal rule, the margin rule, the Ramsey pricing, the Price Caps policy. |
| JEL: | L43 L51 |
| Date: | 2014–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72909&r=com |