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on Industrial Competition |
| By: | Moraga-Gonzalez, Jose L. (IESE Business School); Petrikaite, Vaiva (University of Groningen) |
| Abstract: | This paper studies the incentives to merge in a Bertrand competition model where firms sell differentiated products and consumers search the market for satisfactory deals. In the pre-merger market equilibrium, all firms look alike and so the probability a firm is next in the queue consumers follow when visiting firms is equal across non-visited firms. However, after a merger, insiders raise their prices more than the outsiders, so consumers search for good deals first at the non-merging stores and only then, if they do not find any product satisfactory enough, at the merging stores. When search cost are negligible, the results of Deneckere and Davidson (1985) hold. However, as search costs increase, the merging firms receive fewer customers, so mergers become unprofitable for sufficiently large search costs. This new merger paradox is more likely the higher the number of non-merging firms. |
| Keywords: | mergers; search; insiders; outsiders; order of search; |
| JEL: | D40 D83 L13 |
| Date: | 2011–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0934&r=com |
| By: | Eric BROUILLAT (GREThA, CNRS, UMR 5113) |
| Abstract: | This paper presents an agent-based simulation model that explores the dynamics of product lifetimes on a competitive market. The main objective of this modelling exercise is to investigate the conditions under which product-life extension strategies can be effective. In this model, change in products’ characteristics is driven by an endogenous stochastic process relying on the interplays between heterogeneous consumers and firms. The main contribution of the paper is to present a detailed modeling of demand which enables to analyze more thoroughly how decisions of bounded rational consumers impact on the dynamics of the system and, more particularly, how purchase process shapes market selection and strategies of firms. While most existing literature on product lifetime investigates durable goods monopolists, our study highlights that competition and diversity matter. The coexistence of competing products with different lifetimes can encourage firms to market long lifetime products. Our results also stress the critical role played in market dynamics by the processes driving purchase decision. The purchasing behavior of consumers in itself will greatly guide firms’ strategies and in fine shape market structure. |
| Keywords: | industrial dynamics; obsolescence; product durability; product lifetimes; simulation model; sustainable consumption |
| JEL: | O33 D11 D21 Q57 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2011-31&r=com |
| By: | Fanti, Luciano; Gori, Luca |
| Abstract: | The present study analyses the dynamics of a Cournot duopoly with managerial sales delegation and bounded rational players. We find that when firms’ owners hire a manager and delegate the output decisions to him, the unique Cournot-Nash equilibrium is more likely to be destabilised (through a flip bifurcation) than when firms maximise profits. Moreover, highly periodicity and deterministic chaos can also occur as the managers’ bonus increases. |
| Keywords: | Bifurcation; Chaos; Cournot; Duopoly; Managerial incentive contracts |
| JEL: | L13 D43 C62 |
| Date: | 2011–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33828&r=com |
| By: | Kaldasch, Joachim |
| Abstract: | Presented is an evolutionary model of consumer non-durable markets, which is an extension of a previously published paper on consumer durables. The model suggests that the repurchase process is governed by preferential growth. Applying statistical methods it can be shown that in a competitive market the mean price declines according to an exponential law towards a natural price, while the corresponding price distribution is approximately given by a Laplace distribution for independent price decisions of the manufacturers. The sales of individual brands are determined by a replicator dynamics. As a consequence the size distribution of business units is a lognormal distribution, while the growth rates are also given by a Laplace distribution. Moreover products with a higher fitness replace those with a lower fitness according to a logistic law. Most remarkable is the prediction that the price distribution becomes unstable at market clearing, which is in striking difference to the Walrasian picture in standard microeconomics. The reason for this statement is that competition between products exists only if there is an excess supply, causing a decreasing mean price. When, for example by significant events, demand increases or is equal to supply, competition breaks down and the price exhibits a jump. When this supply shortage is accompanied with an arbitrage for traders, it may even evolve into a speculative bubble. Neglecting the impact of speculation here, the evolutionary model can be linked to a stochastic jump-diffusion model. |
| Keywords: | non-durables; evolutionary economics; economic growth; price distribution; Laplace distribution; replicator equation; firm growth; growth rate distribution; competition; jump-diffusion model |
| JEL: | D21 L11 D11 C00 D91 A10 C50 E30 D00 D92 D01 O12 |
| Date: | 2011–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33743&r=com |
| By: | Corrado Benassi (Dipartimento di Scienze Economiche, Alma Mater Studiorum - Università di Bologna; The Rimini Centre for Economic Analysis (RCEA)); Alessandra Chirco (Dipartimento di Scienze Economiche e Matematico-Statistiche, Università del Salento); Marcella Scrimitore (Dipartimento di Scienze Economiche e Matematico-Statistiche, Università del Salento; The Rimini Centre for Economic Analysis (RCEA)) |
| Abstract: | We study the optimal manipulation rules of a public firm’s objective function in a mixed duopoly with imperfect product substitutability. We compare the solutions under quantity and price competition, and the way in which they are affected by the degree of product substitutability. This allows us to show that partial privatization, strategic delegation and other specific government’s commitments on the objective function of the public management can be looked at as special cases of these optimal rules, and to evaluate the viability of these policies under the two modes of competition. In this framework, we also discuss the equivalence between manipulation of the objective function and Stackelberg leadership. |
| Keywords: | Mixed oligopoly, strategic manipulation, partial privatization |
| JEL: | D43 L13 L32 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:43_11&r=com |
| By: | Kenji Fujiwara (Kwansei Gakuin University) |
| Abstract: | This paper explores some implications of the comparison between feedback Nash and Stackelberg equilibria for growth and welfare in a `voracity' model. We show that as compared to the Nash equilibrium, the Stackelberg equilibrium involves a lower growth rate while it leaves both the leaders and the followers better o, i.e., the Stackelberg equilibrium is Pareto superior to the Nash equilibrium. |
| Keywords: | Dynamic game, Growth, Welfare, Feedback Nash equilibrium, Feedback Stackelberg equilibrium |
| JEL: | C73 O41 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:77&r=com |
| By: | Josheski, Dushko; Koteski, Cane; Lazarov, Darko |
| Abstract: | This paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour ( w=1); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES).On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal. |
| Keywords: | Monopolistic competition; CES; Dixit-Stiglitz model; product differentiation |
| JEL: | B21 D43 |
| Date: | 2011–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33802&r=com |
| By: | Arikan, Asli M. (OH State University); Stulz, Rene M. (OH State University) |
| Abstract: | Lifecycle theories of mergers and diversification predict that firms make acquisitions and diversify when their internal growth opportunities become exhausted. Free cash flow theories make similar predictions. In contrast to these theories, we find that the acquisition rate of firms (defined as the number of acquisitions in an IPO cohort-year divided by the number of firms in that cohort-year) follows a u-shape through their lifecycle as public firms, with young and mature firms being equally acquisitive but more so than middle-aged firms. Firms that go public during the merger/IPO wave of the 1990s are significantly more acquisitive early in their public life than firms that go public at other times. Young public firms have a lower acquisition rate of public firms than mature firms, but the opposite is true for acquisitions of private firms and subsidiaries. Strikingly, firms diversify early in their life and there is a 41% chance that a firm's first acquisition is a diversifying acquisition. The stock market reacts more favorably to acquisitions by young firms than to acquisitions by mature firms except for acquisitions of public firms paid for with stock. There is no evidence that the market reacts more adversely to diversifying acquisitions by young firms than to other acquisitions. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2011-18&r=com |
| By: | Hoewer, Daniel; Schmidt, Tobias; Sofka, Wolfgang |
| Abstract: | Information economics has emerged as the primary theoretical lens for framing financing decisions in firm R&D investment. Successful outcomes of R&D projects are either ex-ante impossible to predict or the information is asymmetrically distributed between inventors and investors. As a result, bank lending for firm R&D has been rare. However, firms can signal the value of their R&D activities and as a result reduce the information deficits that block the availability of external funding. In this study we focus on three types of signals: Firm's existing patent stock, the presences of a joint venture investor and whether the firm has received a government R&D subsidy. We argue theoretically that all of these signals have the potential to alter the risk assessment of the firm's main bank. Additionally, we explore heterogeneities in these risk assessments arising from the industry level and the main bank's portfolio. We test our theoretical predictions for a sample of more than 7,000 firm observations in Germany over a multi-year period. Our theoretical predictions are only supported for firms' past patent activity while other signals fail to alter the risk assessment of a firm's main bank. Besides, we confirm that the risk evaluation is not randomly distributed across bank-firm dyads but depends on industry and bank characteristics. -- |
| Keywords: | Innovation,banking,information asymmetry |
| JEL: | D82 G30 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11055&r=com |
| By: | Waheed, Abdul (UNU-MERIT) |
| Abstract: | The impact of size and competition on firm-level innovative activities has obtained considerable attention in developed countries, but the focus is still lacking in developing world. This paper is an attempt to contribute in this direction by including 14 Latin American countries, and by using Enterprise Survey data of the World Bank. We consider both input and output innovation to observe the influence of firm size and of market concentration on innovative activities, and to interrogate the differences in influences of innovation determinants in different size classes and competition statuses. Our analysis reveals that employment increases the likelihood of R&D and product innovation, and its influence on R&D expenditures is positive but at less than proportionate rate. We find that product market competition increases the probability of both R&D decision and innovation output, but it has no influence on R&D intensity. We observe no relationship between R&D expenditures per employee and product innovation. Country and industry differences also contribute substantially towards firm-level R&D activities and product innovation. Moreover, large or small firms do no tend to be advantageous for employment and competition in order to influence R&D activities; however, for product innovation, competition is a more significant stimulus for large firms compared to small ones. Our results suggest that firms' R&D productivity is independent of size classes and competition environments. All of the determinants (of innovation) are jointly observed to have different effects, for large and small firms, as explanatory factors of both R&D intensity and product innovation, and for different competition environments only for product innovation. |
| Keywords: | R&D, Product innovation, Firm size, market competition |
| JEL: | L11 L12 L13 O32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2011052&r=com |
| By: | Jiøí Schwarz (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper analyzes the role of institutions in price dispersion among cities in the European region in the 1996-2009 period. An overview of the literature on the border effect reveals that the role of institutions is completely neglected. Using the Worldwide Governance Indicators as explanatory variables I find that the better the institutions, the lower the predicted dispersion. The result is robust to different specifications of the regression model and it is consistent with a hypothesis that arbitrage, as an entrepreneurial activity and the main power behind the law of one price, is influenced by institutional quality. |
| Keywords: | border effect, price dispersion, price convergence, law of one price, institutional quality |
| JEL: | D23 E31 F41 L26 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2011_30&r=com |
| By: | Grigolon, Laura; Verboven, Frank |
| Abstract: | We start from an aggregate random coefficients nested logit (RCNL) model to provide a systematic comparison between the tractable logit and nested logit (NL) models with the computationally more complex random coefficients logit (RC) model. We first use simulated data to assess possible parameter biases when the true model is a RCNL model. We then use data on the automobile market to estimate the different models, and as an illustration assess what they imply for competition policy analysis. As expected, the simple logit model is rejected against the NL and RC model, but both of these models are in turn rejected against the more general RCNL model. While the NL and RC models result in quite different substitution patterns, they give robust policy conclusions on the predicted price effects from mergers. In contrast, the conclusions for market definition are not robust across different demand models. In general, our findings suggest that it is important to account for sources of market segmentation that are not captured by continuous characteristics in the RC model. |
| Keywords: | automobile market; competition policy; discrete choice; nested logit; random coefficients logit |
| JEL: | L00 L40 L62 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8584&r=com |
| By: | Roldan, Flavia (IESE Business School) |
| Abstract: | This paper studies the effectiveness of two different antitrust policies by characterizing the network structure of market-sharing agreements that arises under those settings. Market-sharing agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that under a constant probability of inspection and a penalty equal to a firm's limited liability, firms form collusive alliances where all of them are interconnected. In contrast, when the antitrust policy reacts to prices in both dimensions - probability of inspection and penalty - firms form collusive cartels where they are not necessarily fully interconnected. This implies that more competitive structures can be sustained in the second case than in the first case. Notwithstanding, antitrust laws may have a pro-competitive effect in both scenarios, as they give firms in large alliances more incentives to cut their agreements at once. |
| Keywords: | market-sharing; economic networks; antitrust authority; oligopoly; |
| JEL: | D43 K21 L41 |
| Date: | 2011–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0932&r=com |
| By: | Avdasheva, Svetlana; Goreyko, Nadezhda; Pittman, Russell |
| Abstract: | In 2006, Russia amended its competition law and added the concepts of “collective dominance” and its abuse. This was seen as an attempt to address the common problem of “conscious parallelism” among firms in concentrated industries. Critics feared that the enforcement of this provision would become tantamount to government regulation of prices. In this paper we examine the enforcement experience to date, looking especially closely at sanctions imposed on firms in the oil industry. Some difficulties and complications experienced in enforcement are analyzed, and some alternative strategies for addressing anticompetitive behavior in concentrated industries discussed. |
| Keywords: | competition law; collective dominance; abuse of dominance; Russian Federation |
| JEL: | L13 L41 K21 D43 |
| Date: | 2011–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33742&r=com |
| By: | Moraga-Gonzalez, Jose L. (IESE Business School); Wildenbeest, Matthijs R. (Indiana University) |
| Abstract: | Web search technologies are fundamental tools for navigating the Internet. One particular type of search technology is "shopbots", or comparison sites. The emergence of Internet shopbots and their implications for price competition and market efficiency are the focus of this paper. We develop a simple model where a price comparison site tries to attract (possibly vertically and horizontally differentiated) online retailers, on the one hand, and consumers, on the other. Analysis of the model reveals that differentiation among the products of the retailers and their ability to price discriminate between on- and off-comparison-site consumers play a critical role. When products are homogeneous, if online retailers cannot charge different on- and off-the-comparison-site prices, then the comparison site has incentives to charge fees so high that some firms are excluded, which generates price dispersion and an inefficient outcome. By contrast, when on- and off-comparison-site prices can be different, the comparison site attracts all the players to the platform and the allocation is efficient. A similar result obtains when products are horizontally differentiated. In that case, the comparison site becomes an aggregator of product information and no matter whether firms can price discriminate or not, the comparison site attracts all the players to the platform and an efficient outcome ensues. We argue that the lack of vertical product differentiation may also be critical for this efficiency result. In fact, we show that when quality differences are large, the comparison site may find it profitable to charge fees that effectively exclude low quality producers, thereby inducing an inefficient outcome. |
| Keywords: | shopbots; two-sided market; intermediation; price discrimination; product differentiation; |
| Date: | 2011–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0933&r=com |
| By: | Hetland, Ove Rein (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Mjøs, Aksel (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration) |
| Abstract: | We study how firm-bank lending relationships affect firms' access to and terms of credit. We use bank mergers and acquisitions (M&As) as exogenous events that affect lending relationships. Bank M&As lead to organisational changes at the involved banks, which may reduce the amount of soft information encompassed in the firm-bank relationship. Using a unique Norwegian dataset, which combines information on companies' bank accounts, annual accounts, bankruptcies, and bank M&As for the years 1997-2009, we find that domestic bank mergers increase interest rate margins by 0.24 percentage points for opaque small and medium sized rms, relative to less opaque firms. Since, due to information asymmetries, opaque firms are typically more dependent on bank lending relationships, our results indicate that these relationships are advantageous for such borrowers, and the destruction of a relationship during the merger process has adverse effects for the firm. Conversely, the results are not consistent with a lock-in effect due to an information monopoly by the relationship lender that on average increases a firm's borrowing costs over its life cycle. The results are robust to the inclusion of variables that control for eects of market competition. |
| Keywords: | Bank Mergers and Acquisitions; Lending Relationships |
| JEL: | G00 G30 G34 |
| Date: | 2011–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2011_013&r=com |
| By: | Adam Mugume |
| Abstract: | By using the non-structural models of competitive behaviour—the Panzar-Rosse model—the study measures competition and emphasizes the competitive conduct of banks without using explicit information about the structure of the market. Estimations indicate monopolistic competition, competition being weaker in 1995–1999 compared with 2000–2005. Moreover, the relationship between competition, measuring conduct, and concentration measuring the market structure, is negative and statistically significant; which could suggest that a few large banks can restrict competition. Overall, the results suggest that while competition in the Ugandan banking sector falls within a range of estimates for comparator markets, it tends to be on the weaker side. The structural approach to model competition includes the structure-conductperformance(SCP) paradigm and the efficiency hypothesis. Using the SCP framework, we investigate whether a highly concentrated market causes collusive behaviour among larger banks resulting in superior market performance; whereas under the efficiency hypothesis we test whether it is the efficiency of larger banks that makes for enhanced performance. Using Granger causation test, we establish that the efficiency Granger causes concentration and using instrumental variable approach, the study establishes that market power and concentration as measured by market share and Herfindahl index, respectively, positively affect bank profitability. In addition, bank efficiency also affects bank profitability. Other factors that affect bank profitability include operational costs, taxation and core capital requirement. A major policy implication derived from this analysis is that the Ugandan banking system has been subject to deep structural transformation since the early 1990s. Advances in information technology, liberalization of international capital movement, consolidation and privatization have permitted economies of scale in the production and distribution of services and increased risk diversification. These forces have led to lower costs and, undoubtedly, higher efficiency. However, to ensure that lower costs are passed through to households and firms, greater efficiency must be accompanied by a similar strengthening in the competitive environment in the banking sector. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_203&r=com |
| By: | Kenji Fujiwara (Kwansei Gakuin University); Ngo Van Long (McGill University) |
| Abstract: | Formulating a dynamic game model of a world exhaustible resource market, this paper studies welfare implications of Stackelberg leaderships for an individual country and the world. We overcome the problem of time-inconsistency by imposing a \credibility condition" on the Markovian strategy of the Stackelberg leader. Under this condition, we show that the presence of a global Stackelberg leader leaves the follower worse o relative to the Nash equilibrium. Moreover, the world welfare is highest in the Nash equilibrium as compared with the two Stackelberg equilibria. |
| Keywords: | Dynamic game, Exhaustible resource, Stackelberg leadership,Feedback equilibria |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:76&r=com |
| By: | Kong, Jiehong (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Rönnqvist, Mikael (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Frisk, Mikael (Skogforsk) |
| Abstract: | Traditionally, most applications in the initial stage of forest supply chain deal with sawlogs to sawmills, pulpwood to pulp or paper mills and forest residues to heating plants. However, in the past decades, soaring prices of fossil fuel, global awareness about CO2 emission and increasing attention to domestic resource security have boosted the development of alternative renewable energy, among which forest bioenergy is the most promising and feasible choice for medium- and large-scale heating and electricity generation. Different subsidies and incentive policies for green energy further promote the utilization of forest bioenergy. As a result, there is a trend that pulpwood may be forwarded to heating plants as complementary forest bioenergy. Though pulpwood is more expensive than forest residues, it is more efficient to transport and has higher energy content. The competition between traditional forest industries and wood-energy facilities, expected to grow in the future, is very sensitive for the forest companies as they are involved in all activities. In this paper, we develop a model that all raw materials in the forest, i.e. sawlogs, pulpwood and forest residues, and byproducts from sawmills, i.e. wood chips and bark, exist in an integrated market where pulpwood can be sent to heating plants as bioenergy. It represents a multi-period multi-commodity network planning problem with multiple sources of supply, i.e. pre-selected harvest areas, and multiple kinds of destination, i.e. sawmills, pulp mills and heating plants. The decisions incorporate purchasing the raw materials in harvest areas, reassigning byproducts from sawmills, transporting those assortments to different points for chipping, storing, wood-processing or wood-fired, and replenishing fossil fuel when necessary. Moreover, different from the classic wood procurement problem, we take the unit purchasing costs of raw materials as variables, on which the corresponding supplies of different assortments linearly depend. With this price mechanism, the popularity of harvest areas can be distinguished. The objective of the problem is to minimize the total cost for the integrated market including the purchasing cost of raw materials. Therefore, the model is a quadratic programming (QP) problem with a quadratic objective function and linear constraints. A large case study in southern Sweden under different scenario assumptions is implemented to simulate the integrated market and to study how price restriction, market regulation, demand fluctuation, policy implementation and exogenous change in price for fossil fuel will influence the entire wood flows. Pair-wise comparisons show that in the integrated market, competition for raw materials between forest bioenergy facilities and traditional forest industries pushes up the purchasing costs of pulpwood. The results also demonstrate that resources can be effectively utilized with the price mechanism in supply market. The overall energy value of forest bioenergy delivered to heating plants is 23% more than the amount in the situation when volume and unit purchasing cost of raw materials are fixed. |
| Keywords: | Forest supply chain; integrated market; bioenergy; wood procurement; wood distribution; quadratic programming |
| JEL: | L70 L73 |
| Date: | 2011–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2011_011&r=com |
| By: | Rothbauer, Julia; Sieg, Gernot |
| Abstract: | Viewer's private information consumption generates external benefits for society, because information improves the ability of voters to control politicians. Our study compares two settings in a free-to-air TV market: a differentiated duopoly of private channels and an oligopoly with both private channels and a public service broadcaster broadcasting information as well as entertainment programs. We find that welfare effects of public service broadcasting depend on its program design and cost efficiency, the external benefits of voter's information, and the magnitude of lost rents from the advertising market. |
| Keywords: | Media; two-sided TV market; information externalities |
| JEL: | L82 L32 D72 |
| Date: | 2011–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33779&r=com |