|
on Industrial Competition |
| By: | Bos Jaap W.B.; Ling Chan Yee; Kolari James W; Yuan Jiang (METEOR) |
| Abstract: | Empirical literature and related legal practice using concentration as a proxy for competition measurement are prone to a fallacy of division, as concentration measures are appropriate for perfect competition and perfect collusion but not intermediate levels of competition. Extending the classic Cournot-type competition model of Cowling and Waterson (1976) and Cowling (1976) used to derive the Hirschman-Herfindahl Index (HHI) of market concentration, we propose an adaptation of this model that allows collusive rents for all, none, or some of the firms in a market. Application of our model and new critical mass measures to data for U.S. commercial banks in the period 1984-2004 confirms that concentration measures are unreliable competition metrics. Our results lead us to conclude that critical mass is a promising new market power metric for competition analyses. Policy and future research implications are briefly discussed. |
| Keywords: | microeconomics ; |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2010063&r=com |
| By: | Fazio, G. |
| Abstract: | The thesis aims to bridge topics traditionally belonging to different areas of the subject: competition and entrepreneurship coming from microeconomics and industrial organization; and growth, from macroeconomics. It centres around the notion that market structure and conduct affect performance and hence growth. Firms optimize by anticipating changes in consumers' demand and in suppliers' behaviour, which are a function of the market structure and its changes. Market-entry can be explained by the level of competition in a market which can be altered by the implementation of specific policies (for instance, the way a competition authority handles mergers). Failing to have an appropriate antitrust regime will ultimately harm entrepreneurship since it will affect one's ability to understand and to handle the risks associated with launching a new venture. The thesis also explores how different definitions of entrepreneurship explain varying innovation mechanisms (neck-and-neck and leapfrogging) and how this dovetails with the structure and conduct within a market. For transition economies, we find that competition policy has played a growth-enhancing role and that this effect may be larger than the impact associated with privatization, and we also find evidence of policies' complementarities. These findings are also echoed by our individual-level analysis. We analyse the determinants of high growth expectations entrepreneurial entry (HGE) using individual data drawn on working age population, based on the Global Entrepreneurship Monitor surveys for the 1998-2004 period. We find that HGE is more likely to occur when the entrepreneur perceives a gap in the market with no other producers supplying the same product. This reinforces the theory that the amount of competition faced by an entrepreneur affects the rate of HGE and also provides a microeconomic foundation for the country-level growth effects described for transition countries. |
| Date: | 2010–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ucllon:http://discovery.ucl.ac.uk/624499/&r=com |
| By: | König, Jan |
| Abstract: | This paper shows the strategic aspects of international outsourcing in a duopolistic market. Due to different costs of integrated production and outsourcing, the choice of a firm influences the strategy of the competitor via the output price. Therefore, the resulting market constellation depends on the fixed costs and the difference between marginal costs. We show that the three market constellations, both firms produce integrated, both use outsourcing and the firms operate with different strategies are possible. Also the welfare effects of the different outcomes are analysed. If the optimal firms decision is characterized by different strategies, this constellations for given costs is pareto superior to a constellation with equal strategies. On the other hand, for given costs, a resulting constellation of equal strategies can be pareto inferior or pareto superior to a constellation with different strategies. -- |
| Keywords: | strategic outsourcing,oligopoly,welfare effects |
| JEL: | D43 L13 L22 L23 L24 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201034&r=com |
| By: | Nawar, Hashem |
| Abstract: | In this paper, I examine the relationship between industry concentration and the cross-section of stock returns in the London Stock Exchange between 1985 and 2010. Using Multifactor asset pricing theory, I test whether industry concentration is a new asset pricing factor in addition to conventional risk factors such as beta, firm size, book-to-market ratio, momentum, and leverage. I find that industry concentration is negatively related to the expected stock returns in all Fama and MacBeth cross-sectional regressions. In addition, the negative relationship between industry concentration and expected stock returns remain significantly negative after beta, size, book-to-market, momentum, and leverage are included, while beta is never significant. The results are robust to firm- and industry-level regressions and the formation of firms into 100 size-beta portfolios. The findings indicate that competitive industries earn, on average, higher risk-adjusted returns compared to concentrated industries which is consistent with Schumpeter’s concept of creative destruction. |
| Keywords: | Industry concentration; Stock returns; Multifactor asset pricing theory; Competitive industries; Concentrated industries; Creative destruction; London Stock Exchange |
| JEL: | G1 G12 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28440&r=com |
| By: | Kyle Hampton (University of Alaska, Anchorage, Economics Department); Katerina Sherstyuk (University of Hawaii at Manoa, Economics Department) |
| Abstract: | Antitrust exemptions granted to businesses under extenuating circumstances are often justified by the argument that they benefit the public by helping producers adjust to otherwise difficult economic circumstances. Such exemptions may allow firms to coordinate their capacities, as was the case of post-September 11, 2001 antitrust immunity granted to Aloha and Hawaiian Airlines. We conduct economic laboratory experiments to determine the effects of explicit capacity coordination on oligopoly firms' abilities to adjust to negative demand shocks and on industry prices. The results suggest that capacity coordination speeds the adjustment process, but also has a clear pro-collusive effect on firm behavior. |
| Keywords: | economic experiments; demand shocks; capacity coordination; collusion |
| JEL: | C92 D44 L41 |
| Date: | 2010–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201023&r=com |
| By: | Ruiz-Porras, Antonio; Lopez-Mateo, Celina |
| Abstract: | We study how competition and corporate governance may explain investment decisions of Mexican manufacturing firms. We develop the study with indexes of market concentration and agency costs and OLS regressions. The analysis uses longitudinal census data. Our results suggest that investment is better explained by the Dominance Index, a Mexican measure of concentration, than by the Herfindahl-Hirschman one. They also suggest that agency costs (proxy for the degree of separation of ownership and control), and market competition may encourage investment decisions. Furthermore they suggest an inverse relationship between market competition and agency costs. We believe that our findings support the hypothesis that competition may be an alternative mechanism to encourage corporate practices in emerging economies. |
| Keywords: | Corporate governance; competition; investment; Mexico; manufacturing; economic development |
| JEL: | G34 O16 L22 L60 |
| Date: | 2011–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28452&r=com |
| By: | Francisco Martínez-Sánchez (Universidad de Alicante); Javier M. López Cuñat (Universidad de Alicante) |
| Abstract: | In this paper we analyze the strategic decisions of the government, the incumbent and the pirate in a market where the good is piratable. We show that deterred or accommodated piracy can occur in equilibrium, but pure monopoly cannot occur for any anti-piracy policy. We also show that the initial quality differential between the original and the pirated product is essential to explain the effects of an increase in the quality of pirated product on both the level of piracy and the optimal monitoring rate. Assuming a one-stage entry process and a sufficiently high quality differential, we prove that the incumbent always prefers to move first and make a credible commitment to a price. However, this is not true with a two-stage entry process. |
| Keywords: | for-profit piracy, quality, monitoring, price competition. |
| JEL: | K42 L13 L86 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2011-02&r=com |
| By: | Hector Perez-Saiz |
| Abstract: | In many industries, firms usually have two choices when expanding into new markets: They can either build a new plant (greenfield entry) or they can acquire an existing incumbent. In the U.S. cement industry, the comparative advantage (e.g., TFP or size) of entrants versus incumbents and regulatory entry barriers are important factors that determine the means of expansion. Using a rich database of the U.S. Census of Manufactures (1963-2002), an entry game is proposed to model this decision and estimate the supply and demand primitives to determine the importance of these factors. Two policies that affect the entry behavior and industry equilibrium are considered: An asymmetric environmental policy that creates barriers to greenfield entry and a policy that creates barriers to entry by acquisition. In the counterfactual analysis it is found that a less favorable environment for acquisitions during the Reagan-Bush administration would decrease the acquired plants by 90% and increase greenfield entry by 21%. Also, the Clean Air Act Amendments of 1990 increased the number of acquisitions by 3.5%. Furthermore, my simulations suggest that regulations that create barriers to greenfield entry are less favorable in terms of welfare than regulations that create barriers to entry by acquisition. Finally, it is shown how the parameter estimates change with the traditional approach in the entry literature where entry by acquisition is not considered, and when using a simple OLS estimation. |
| Keywords: | Productivity; Market structure and pricing; Econometric and statistical methods |
| JEL: | L13 L40 L61 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-1&r=com |
| By: | Vincent Bouvatier; Antonia López-Villavicencio; Valérie Mignon |
| Abstract: | This paper investigates the relationship between bank competition and credit procyclicality for 17 OECD countries on the 1986-2009 period. We account for heterogeneity among countries in terms of bank competition through the use of a hierarchical clustering methodology. We then estimate panel VAR models for the identified sub-groups of economies to investigate whether credit procyclicality is more important when the degree of bank competition is high. Our findings show that while credit significantly responds to shocks to GDP, the degree of bank competition is not essential in assessing the procyclicality of credit for OECD countries. |
| Keywords: | Credit cycle, economic cycle, bank competition, financial stability, panel VAR. |
| JEL: | C33 E32 E51 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2011-2&r=com |
| By: | Erdogdu, Erkan |
| Abstract: | One of the main expectations from power market reform has been a reduction in price-cost margins and cross-subsidy levels between industrial and residential consumers. This paper focuses on this issue by looking at the impact of the electricity industry reforms on residential and industrial electricity price-cost margins and their effect on cross-subsidy levels between consumer groups. Using panel data for 63 developed and developing countries covering the period 1982–2009, empirical models are developed and analyzed. The research findings suggest that there isn’t a uniform pattern for the impact of reform process as a whole on price-cost margins and cross-subsidy levels. Each individual reform step has different impact on price-cost margins and cross subsidy levels for each consumer and country group. Our findings imply that reform steps have different impacts in different countries, which supports the idea that reform prescription for a specific country cannot easily be transferred to another one. So, transferring the formal and economic structure of a successful power market in a developed country to developing countries is not a sufficient condition for good economic performance of the electricity industries in developing countries. Furthermore, the study suggests that power consumption, income level and country specific features constitute other important determinants of electricity price-cost margins and cross-subsidy levels. |
| Keywords: | Models with Panel Data; Power Market Reform; Electricity Prices |
| JEL: | C51 L11 Y40 L94 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28414&r=com |
| By: | Bataille, Marc; Coenen, Michael |
| Abstract: | It has been a policy proposal since long to vertically separate transport and infrastructure in Germany's railway sector. The proposal received new momentum, when selling the transport subsidiaries of Deutsche Bahn AG to the public was discussed in 2008/2009. While vertical separation is generally understood to prevent foreclosure and discrimination by the incumbent network-operator, advocates of vertical integration claim separation to have adverse effects on access prices to the infrastructure. We examine the price setting incentives of an integrated and a separated network-operator and compare our results to rough empirical s on the profitability of the Deutsche Bahn AG infrastructure branches. Theoretical analysis highlights that after separation exceptional mark-ups on access prices to the railway-infrastructure are feasible only in segments of railway-transport with insufficient competition. We therefore conclude that an economic policy for the railway sector directed on efficient supply and promoting effective competition should unbind itself from alleged price synergies and should press ahead with vertical separation instead. -- |
| JEL: | D43 L22 L51 L92 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:diceop:07&r=com |
| By: | Joern Meissner (Department of Management Science, Lancaster University Management School); Arne Strauss (Department of Management Science, Lancaster University Management School); Kalyan Talluri (ICREA & Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain) |
| Abstract: | The network choice revenue management problem models customers as choosing from an offerset, and the firm decides the best subset to offer at any given moment to maximize expected revenue. The resulting dynamic program for the firm is intractable and approximated by a deterministic linear program called the CDLP which has an exponential number of columns. However, under the choice-set paradigm when the segment consideration sets overlap, the CDLP is difficult to solve. Column generation has been proposed but finding an entering column has been shown to be NP-hard. In this paper, starting with a concave program formulation based on segment-level consideration sets called SDCP, we add a class of valid inequalities called product cuts, that project onto subsets of intersections. In addition we propose a natural direct tightening of the SDCP called kSDCP, and compare the performance of both methods on the benchmark data sets in the literature. Both the product cuts and the kSDCP method are very simple and easy to implement, work with general discrete choice models and are applicable to the case of overlapping segment consideration sets. In our computational testing SDCP with product cuts achieves the CDLP value at a fraction of the CPU time taken by column generation and hence has the potential to be scalable to industrial-size problems. |
| Keywords: | operations research, marketing, bid prices, yield management, heuristics, discrete-choice, network revenue management |
| JEL: | C61 M11 M31 L93 L83 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:lms:mansci:mrg-0020&r=com |