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on Industrial Competition |
| By: | Giuseppe, DE FEO; Jean, HINDRIKS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics) |
| Abstract: | There is a general presumption that competition is a good thing. In this paper we show that competition in the insurance markets can be bad when there is adverse selection; Using the dual theory of choice under risk, we are able to fully characterize both the competitive and the monopoly market outcomes. When they are two types of risk, the monopoly dominates competition if and only if competition leads to market unravelling. When there are a continuum of types the efficiency of competition is less trivial. In effect monopoly is shown to provide better insurance but at the cost of driving out some agents from the market. Performing simulation for differnt distributions of risk, we find that monopoly in general performs (much) better than competition in terms of the realization of the gains from trade across all traders in equilibrium. The reason is that the monopolist can exploit its market power to relax the incentive constraints |
| Keywords: | monopoly; competition; non-expected utility; insurance; adverse selection |
| JEL: | G22 |
| Date: | 2005–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005042&r=com |
| By: | Erik Feijen (The World Bank and University of Amsterdam) |
| Abstract: | The author tests the hypothesis that during systemic banking crises, access to finance is opportunistically tightened by incumbents to eliminate or weaken competition from mainly young firms. He finds this to be especially true in more corrupt countries. To do so, he uses a methodology similar to Rajan and Zingales (1998) on three-digit manufacturing industry-level data provided by the United Nations Statistics Division for about 15 industrial and developing countries in over 20 industries on average. The author shows that price-cost margins in externally more financially dependent industries are higher during crisis than in externally less dependent industries in countries with higher levels of corruption. He finds the opposite relationship for the change in the industry-level number of establishments during a crisis. The results withstand an array of robustness checks, including using different indices of corruption, different controls, and robust estimation techniques. |
| Keywords: | Domestic finance, Governance, Macroeconomics and growth |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3660&r=com |
| By: | Frank A. Wolak (Stanford University) |
| Abstract: | This paper first describes those features of the electricity supply industry that make a prospective market monitoring process essential to a well-functioning wholesale market. Some of these features are shared with the securities industry, although the technology of electricity production and delivery make a reliable transmission network a necessary condition for an efficient wholesale market. These features of the electricity supply industry also make antitrust or competition law alone an inadequate foundation for an electricity market monitoring process. This paper provides examples of both the successes and failures of market monitoring from several international markets. More than 10 years of experience with the electricity industry restructuring process has shown that market failures are more likely and substantially more harmful to consumers than other market failures because of how electricity is produced and delivered and the crucial role it plays in the modern economy. Wholesale market meltdowns of varying magnitudes and durations have occurred in electricity markets around the world, and many of them could have been prevented if a prospective market monitoring process backed by the prevailing regulatory authority had been in place at the start of the market. |
| Keywords: | Infrastructure |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3691&r=com |
| By: | Frank A. Wolak (Stanford University) |
| Abstract: | The author first describes those features of the electricity supply industry that make a prospective market monitoring process essential to a well-functioning wholesale market. Some of these features are shared with the securities industry, although the technology of electricity production and delivery make a reliable transmission network a necessary condition for an efficient wholesale market. These features of the electricity supply industry also make antitrust or competition law alone an inadequate foundation for an electricity market monitoring process. The author provides examples of both the successes and failures of market monitoring from several international markets. More than 10 years of experience with the electricity industry restructuring process has shown that market failures are more likely and substantially more harmful to consumers than other market failures because of how electricity is produced and delivered and the crucial role it plays in the modern economy. Wholesale market meltdowns of varying magnitudes and durations have occurred in electricity markets around the world, and many of them could have been prevented if a prospective market monitoring process backed by the prevailing regulatory authority had been in place at the start of the market. |
| Keywords: | Infrastructure |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3692&r=com |
| By: | John Cubbin (City University); John Stern (London Business School) |
| Abstract: | The authors review a number of studies on the effectiveness of utility regulatory agency and governance arrangements for the electricity industry, particularly for developing countries. They discuss governance criteria and their measurement, both legal frameworks and surveys of regulatory practice. They also discuss the results from econometric studies of effectiveness for regulatory agencies in the electricity and telecommunications industries and compare these with the results from econometric studies of independent central banks and their governance. The authors conclude with a discussion of policy implications and of priorities for information collection to improve understanding of these issues. |
| Keywords: | Infrastructure, Governance |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3536&r=com |
| By: | Christopher A Laincz; Ana Sofia Domingues Rodrigues |
| Abstract: | This paper presents a dynamic model of the firm size distribution. Empirical studies of the firm size distribution often compare the moments to a log-normal distribution as implied by Gibrat's Law and note important deviations. Thus, the first, and basic questions we ask are how well does the dynamic industry model reproduce Gibrat's Law and how well does it match the deviations uncovered in the literature. We show that the model reproduces these results when testing the simulated output using the techniques of the empirical literature. We then use the model to study how structural parameters affect the firm size distribution. We find that, among other things, fixed and sunk costs increase both the mean and variance of the firm size distribution while generally decreasing the skewness and kurtosis. The rate of growth in an industry also raises the mean and variance, but has non-monotonic effects on the higher moments. |
| Keywords: | Firm size distribution; Gibrat's Law; R&D. |
| JEL: | L11 L13 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:05/34&r=com |
| By: | Charles Kenny (The World Bank) |
| Abstract: | The monopoly-supported universal service obligation (USO) is usually defended on the grounds that the monopoly allows for cross-subsidy in letter services that in turn allows universal access to a service of great importance to all. The author argues that letter delivery (as opposed to other services that may be provided by post offices) is not in universal demand in poor countries, that the size of the market in developing countries is such that USOs could not be met under the monopoly model, and that the monopoly carries heavy costs for sector development and consumer welfare. He proposes in the place of the postal USO a competitive approach involving universal access to a range of services that poor people have a need to access. Regarding reform of the incumbent, the author takes a preliminary first cut at examining the statistical relationship between postal performance (as measured by letters per capita allowing for income per capita), trust in the postal service, and postal efficiency, and finds a significant link between the three. The results suggest that reforms that improve postal efficiency and trust in the postal network will improve the performance of the postal network. The author suggests that there may be better uses of cross-subsidy from within the sector and government subsidy from without than supporting the inefficient delivery of a service rarely used by poor people. |
| Keywords: | Infrastructure, Public sector management |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3627&r=com |
| By: | Ana, MAULEON; José, SEMPERE-MONERRIS; Vincent, VANNETELBOSCH |
| Abstract: | We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer and a retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs : (i) the non-exclusive distribtion & non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution & exclusive dealing network in which each retailer distributes a different product is stable for low degrees of product differentiation; (iii) the mixed distribution network in which one retailer distributes both products while the other retailer sells only one is stable for high degrees of product differentiation and large link costs. We show that the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is either low or high. |
| Keywords: | Networks; Retailers; Manufacturers |
| JEL: | C70 L13 L20 J50 J52 |
| Date: | 2005–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005036&r=com |
| By: | Andre van Stel; David Storey; Roy Thurik; Sander Wennekers |
| Abstract: | This exploratory study focuses on the conversion from nascent to actual entrepreneurship and the role of entry barriers in this process. Using data for a sample of countries partici-pating in the Global Entrepreneurship Monitor between 2002 and 2004, we estimate a two-equation model explaining the nascent entrepreneurship rate and the young business entre-preneurship rate, while taking into account the interrelationship between the two variables (i.e. the conversion). Furthermore various determinants of entrepreneurship reflecting the demand and supply side of entrepreneurship as well as government intervention are incor-porated in the model. We find evidence for a strong conversion effect from nascent to ac-tual entrepreneurship. We also find positive effects on entrepreneurial activity rates of la-bour flexibility and tertiary enrollment and a negative effect of social security expenditure. Concerning the effect of entry regulations we find mixed results. Using one set of entry regulation measures we find no effects whereas using data from a second source we find a weak negative effect of more burdensome entry regulations on the rate of entrepreneurship. |
| Keywords: | nascent entrepreneurship, young businesses, entry regulations |
| JEL: | H10 M13 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2005-35&r=com |
| By: | Xavier Brusset (IAG, Université Catholique de Louvain, Louvain la Neuve, Belgium) |
| Abstract: | When, in a supply chain, a supplier and a buyer have the choice of transaction form to do business, the equilibrium transaction form which emerges is much more constrained than previously envisaged in literature. In this paper, two forms of long-term supply contracts and procurement in the spot market are compared. A capacity constrained service provider and a buyer of such service choose among three different transaction forms: spot procurement, minimum purchase commitment and quantity flexibility contracts. The ultimate demand the buyer has to satisfy and the spot market price of the input she has to purchase from the supplier are exogenous stochastic processes. Complete analytical results and a numerical example are presented. This paper builds upon recent supply chain contract literature by trying to join in one setting problems which up till now were considered in isolation. |
| Keywords: | contracts, supply chain, statistical decision theory, optimization techniques, transactional relationships |
| JEL: | L14 L23 C44 C61 C62 |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0512007&r=com |
| By: | Björn Wellenius (wellenius@attglobal.net); Isabel Neto (The World Bank) |
| Abstract: | The radio spectrum is a major component of the telecommunications infrastructure that underpins the information society. Spectrum management, however, has not kept up with major changes in technology, business practice, and economic policy during the past two decades. Traditional spectrum management practice is predicated on the spectrum being a limited resource that must be apportioned among uses and users by government administration. For many years this model worked well, but more recently the spectrum has come under pressure from rapid demand growth for wireless services and changing patterns of use. This has led to growing technical and economic inefficiencies, as well as obstacles to technological innovation. Two alternative approaches are being tried, one driven by the market (spectrum property rights) and another driven by technology innovation (commons). Practical solutions are evolving that combine some features of both. Wholesale replacement of current practice is unlikely, but the balance between administration, property rights, and commons is clearly shifting. Although the debate on spectrum management reform is mainly taking place in high-income countries, it is deeply relevant to developing countries as well. |
| Keywords: | Infrastructure, Industry, Private sector development, Governance, Public sector management |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3742&r=com |
| By: | Keith E. Maskus (University of Colorado at Boulder); Tsunehiro Otsuki (Osaka University); John S. Wilson (The World Bank) |
| Abstract: | Standards and technical regulations exist to protect consumer safety or to achieve other goals, such as ensuring the interoperability of telecommunications systems, for example. Standards and technical regulations can, however, raise substantially both start-up and production costs for firms. Maskus, Otsuki, and Wilson develop econometric models to provide the first estimates of the incremental production costs for firms in developing nations in conforming to standards imposed by major importing countries. They use firm-level data generated from 16 developing countries in the World Bank Technical Barriers to Trade (TBT) Survey Database. Their findings indicate that standards do increase short-run production costs by requiring additional inputs of labor and capital. A 1 percent increase in investment to meet compliance costs in importing countries raises variable production costs by between 0.06 and 0.13 percent, a statistically significant increase. The authors also find that the fixed costs of compliance are nontrivial-approximately $425,000 per firm, or about 4.7 percent of value added on average. The results may be interpreted as one indication of the extent to which standards and technical regulations might constitute barriers to trade. While the relative impact on costs of compliance is relatively small, these costs can be decisive factors driving export success for companies. In this context, there is scope for considering that the costs associated with more limited exports to countries with import regulations may not conform to World Trade Organization rules encouraging harmonization of regulations to international standards, for example. Policy solutions then might be sought by identifying the extent to which subsidies or public support programs are needed to offset the cost disadvantage that arises from nonharmonized technical regulations. |
| Keywords: | Industry, Private sector development, International economics |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3590&r=com |
| By: | Mark Dutz (The World Bank) |
| Abstract: | This empirical paper sheds light on a significant element of the debate of whether infrastructure services have a strong impact on economic development by exploring the impact of innovative road freight services on downstream business users. The paper uses a new and purpose-specific survey of 165 logistics service providers and 493 user enterprises in food processing, food distribution, and the automotive industry in the Czech Republic, Hungary, and Poland. The main findings are that there are substantial downstream benefits from innovations in road freight services, both dampening cost increases and raising sales revenues of business users. The additional finding that increased intensity of competition in road freight services is significantly associated with the provision of innovative services suggests that easing any remaining barriers to competition in upstream business sectors should be a priority. |
| Keywords: | Infrastructure, Industry, Private sector development |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3768&r=com |