|
on Industrial Competition |
| By: | Kalina Manova; Zhiwei Zhang |
| Abstract: | This paper proposes that quality differentiation is an important feature of the operations of multi-product firms. We develop a model in which manufacturers vary product quality across their product range by using inputs of different quality levels. Firms core competency is in varieties of superior quality that bring higher sales despite being more expensive. Using detailed customs data for China, we establish four new stylized facts consistent with this model. First, firms earn more bilateral and global revenues from their more expensive products. Second, exporters focus on their top expensive goods, drop cheaper articles and earn lower revenues in markets where they sell fewer varieties. Third, companies' sales are more skewed towards their core expensive goods in destinations where they offer less items. Finally, export prices are positively correlated with input prices across products within a firm. Our results have important implications for the aggregate and distributional effects of trade reforms and exchange rate movements. |
| JEL: | D22 F10 F12 F14 L10 L11 L15 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18637&r=com |
| By: | Bouckaert, J.M.C.; Degryse, H.A.; Dijk, T. van (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: We study the competitive and welfare consequences when only one firm must commit to uniform pricing while the competitor’s pricing policy is left unconstrained. The asymmetric no-discrimination constraint prohibits both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that an asymmetric no-discrimination constraint only leads to higher profits for the unconstrained firm if the monopolistic segment is large enough. Therefore, a regulatory policy objective of encouraging entry is not served by an asymmetric no-discrimination constraint if the monopolistic segment is small. Only when the monopolistic segment is small and rivalry exists in the competitive segment does the asymmetric no-discrimination constraint enhance welfare. |
| Keywords: | Dominant firms;price discrimination;competition policy;regulation. |
| JEL: | D11 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012004&r=com |
| By: | Rosa-Branca Esteves (Universidade do Minho - NIPE) |
| Abstract: | This paper investigates the competitive and welfare effects of information accuracy improvements in markets where firms can price discriminate after observing a private and noisy signal about a consumer’s brand preference. It shows that firms charge more to customers they believe have a brand preference for them, and that this price has an inverted-U shaped relationship with the signal’s accuracy. In contrast, the price charged after a disloyal signal has been observed falls as the signal’s accuracy rises. While industry profit and overall welfare fall monotonically as price discrimination is based on increasingly more accurate information, the reverse happens to consumer surplus. |
| Keywords: | Competitive Price Discrimination, Imperfect Customer Recognition, Imperfect Information |
| JEL: | D43 D80 L13 L40 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:12/2012&r=com |
| By: | Holmberg, P.; Willems, B. |
| Abstract: | We demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete with supply functions. In equilibrium firms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare. |
| Keywords: | Supply function equilibrium, Option contracts, Strategic commitment |
| JEL: | D43 D44 G13 L13 L94 |
| Date: | 2012–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1252&r=com |
| By: | Chenhang Zeng (Research Center for Games and Economic Behavior, Shandong University) |
| Abstract: | This paper considers a two-period model with experienced consumers and inexperienced consumers. The retailer determines both advance selling price and regular selling price at the beginning of the first period. I show that advance selling weekly dominates no advance selling, and the optimal advance selling price may be at a discount, at a premium or at the regular selling price. To help the retailer choose the optimal pricing strategy, conditions for each possible advance selling strategy to outperform others are characterized. Furthermore, how the consumer composition affects the retailer¡¯s optimal pricing strategy and profit are examined. In the extension, a special case with no experienced consumers provides a new explanation of advance selling price premium. That is, without experienced consumers, there are no incentives for the retailer to implement advance selling at a premium price. Besides, another special case indicates that advance selling strictly dominates no advance selling when consumer valuation distribution is uncertain. With pre-order information obtained in the first period under advance selling, the retailer is able to know the consumer valuation distribution and thus better forecast the future demand. |
| Keywords: | advance selling, price commitment, endogenous price, demand uncertainty, experienced consumers. |
| JEL: | C72 D42 L12 M31 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:shn:wpaper:2012-03&r=com |
| By: | Oksana Loginova (Department of Economics, University of Missouri-Columbia); X. Hnery Wang (Department of Economics, University of Missouri-Columbia); Chenhang Zeng |
| Abstract: | The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance. The presence of experienced consumers yields new insights. Specifically, pre-orders from experienced consumers lead to a more precise forecast of future demand by the firm. We show that the firm will always adopt advance selling and that the optimal pre-order price may be at a discount or a premium relative to the regular selling price. |
| Keywords: | advance selling, the Newsvendor Problem, demand uncertainty, experienced consumers, inexperienced consumers |
| JEL: | C72 D42 L12 M31 |
| Date: | 2012–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1213&r=com |
| By: | Yukihiko Funaki (Waseda University); Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam) |
| Abstract: | We consider price-fee competition in bilateral oligopolies with perfectly-divisible goods, non-expandable infrastructures, concentrated agents on both sides, and constant marginal costs. We define and characterize stable market outcomes. Buyers exclusively trade with the supplier with whom they achieve maximal bilateral joint welfare. Prices equal marginal costs. Threats to switch suppliers set maximal fees. These also arise from a negotiation model that extends price competition. Competition in both prices and fees necessarily emerges. It improves welfare compared to price competition, but consumer surpluses do not increase. The minimal infrastructure achieving maximal aggregate welfare differs from the one that protects buyers most. |
| Keywords: | Assignment Games; Infrastructure; Negotiations; Non-linear pricing; Market Power; Countervailing power |
| JEL: | C78 L10 L14 D43 R10 |
| Date: | 2012–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120139&r=com |
| By: | Filistrucchi, L.; Geradin, D.A.A.G.; Damme, E.E.C. van (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: We review the burgeoning literature on two-sided markets focusing on the different definitions that have been proposed. In particular, we show that the well-known definition given by Evans is a particular case of the more general definition proposed by Rochet and Tirole. We then identify the crucial elements that make a market two-sided and, drawing from both theory and practice, derive suggestions for the identification of the two-sided nature of a market. Our suggestions are relevant not only for the analysis of traditional two-sided markets, such as newspapers and payment cards, but also for the analysis of many new markets, such as those for online social networks, online search engines and Internet news aggregators. |
| Keywords: | two-sided markets;platforms;network effects. |
| JEL: | L40 L50 K21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012008&r=com |
| By: | John Asker; Heski Bar-Isaac |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:12-20&r=com |
| By: | Rey, Patrick; Chen, Zhijun |
| Abstract: | We show that large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of the products also offered by the smaller rivals, in order to discriminate multi-stop shoppers from onestop shoppers. Loss leading thus appears as an exploitative device rather than as an exclusionary instrument, although it hurts the smaller rivals as well; banning below-cost pricing increases consumer surplus, rivals’ profits, and social welfare. Our insights extend to industries where established firms compete with entrants offering fewer products. They also apply to complementary products such as platforms and applications. |
| JEL: | L11 L41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:toulou:http://neeo.univ-tlse1.fr/3306/&r=com |
| By: | Butler, Jeffrey (Einaudi Institute for Economics and Finance); Carbone, Enrica (University of Naples "SUN"); Conzo, Pierluigi (University of Turin, Department of Economics); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics) |
| Abstract: | This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new (smaller or foreign) firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, so that the concern is warranted, appropriately designed reputation mechanisms actually stimulate entry. Since quality increases but not prices, our data also suggest that the introduction of reputation may generate large welfare gains for the buyer. |
| Keywords: | Entry; Feedback mechanisms; Governance; Incomplete contracts; Limited enforcement; Incumbency; Multidimensional competition; Participation; Past performance; Procurement; Quality; Reputation; Vendor rating |
| JEL: | H57 L14 L15 |
| Date: | 2012–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hasite:0021&r=com |
| By: | Schmidt, Klaus M.; Spann, Martin; Zeithammer, Robert |
| Abstract: | Pay What You Want (PWYW) can be an attractive marketing strategy to price discriminate between fair-minded and selfish customers, to fully penetrate a market without giving away the product for free, and to undercut competitors that use posted prices. We report on laboratory experiments that identify causal factors determining the willingness of buyers to pay voluntarily under PWYW. Furthermore, to see how competition affects the viability of PWYW, we implement markets in which a PWYW seller competes with a traditional seller. Finally, we endogenize the market structure and let sellers choose their pricing strategy. The experimental results show that outcome-based social preferences and strategic considerations to keep the seller in the market can explain why and how much buyers pay voluntarily to a PWYW seller. We find that PWYW can be viable in isolation, but it is less successful as a competitive strategy because it does not drive traditional posted-price sellers out of the market. Instead, the existence of a posted-price competitor reduces buyers’ payments and prevents the PWYW seller from fully penetrating the market. If given the choice, the majority of sellers opt for setting a posted price rather than a PWYW pricing. We discuss the implications of these results for the use of PWYW as a marketing strategy. |
| Keywords: | customer-driven pricing mechanisms; pay what you want; revenue management; price discrimination; social preferences |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:14308&r=com |
| By: | Wilko Bolt |
| Abstract: | Efficient payment services underpin the smooth operation of the economy. Competition and innovation are key drivers for payment market efficiency in both the short and long run. This paper gives an overview and tries to assess the key determinants that affect pricing, competition and the incentives to innovate in the payment market. While the payment landscape is changing rapidly, it is not yet clear what business model will survive. |
| Keywords: | Payments; pricing; competition; innovation |
| JEL: | L11 G21 C21 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:362&r=com |
| By: | Mirko Abbritti (School of Economics and Business Administration, University of Navarra) |
| Abstract: | Empirical evidence shows that the pass-through of cost shocks to prices is very low, and delayed. This is in stark contrast with the standard framework of monopolistic competition used in macro models, which, absent nominal rigidities, implies complete pass-through of cost shocks to prices. This paper develops a model of pricing dynamics in business to business relationships where incomplete pass-through arises endogenously. The model is based on two assumptions. First, both retailers and wholesalers invest resources to form new, long-term, business relationships. Second, once a business relationship is formed, the prices and the quantities of the intermediate good exchanged are set in a bilateral bargaining between wholesalers and retailers. The repeated nature of the interactions between firms raises the question of whether wholesale prices are allocative. We show that wholesale prices still play an allocative role in the model, but this role is likely to be quite limited. |
| Keywords: | price dynamics, product market frictions, price bargain, customer relations, real rigidities, incomplete pass-through |
| JEL: | E10 E30 |
| Date: | 2012–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp1912&r=com |
| By: | Raphael A. Auer; Raphael S. Schoenle |
| Abstract: | In this paper, we examine the extent to which market structure and the way in which it affects pricing decisions of profit-maximizing firms can explain incomplete exchange rate pass-through. To this purpose, we evaluate how pass-through rates vary across trade partners and sectors depending on the mass and size distribution of firms affected by a particular exchange rate shock. In the first step of our analysis, we decompose bilateral exchange rate movements into broad US Dollar (USD) movements and trade-partner currency (TPC) movements. Using micro data on US import prices, we show that the passthrough rate following USD movements is up to four times as large as the pass-through rate following TPC movements and that the rate of pass-through following TPC movements is increasing in the trade partner's sector-specific market share. In the second step, we draw on the parsimonious model of oligopoly pricing featuring variable markups of Dornbusch (1987) and Atkeson and Burstein (2008) to show how the distribution of firms' market shares and origins within a sector affects the trade-partner specific pass-through rate. Third, we calibrate this model using our exchange rate decomposition and information on the origin of firms and their market shares. We find that the calibrated model can explain a substantial part of the variation in import price changes and pass-through rates across sectors, trade partners, and sector-trade partner pairs. |
| Keywords: | Price levels |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:130&r=com |
| By: | Gärtner, D.L.; Zhou, J. (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: This paper studies cartels’ strategic behavior in delaying leniency applications, a take-up decision that has been ignored in the previous literature. Using European Commission decisions issued over a 16-year span, we show, contrary to common beliefs and the existing literature, that conspirators often apply for leniency long after a cartel collapses. We estimate hazard and probit models to study the determinants of leniency-application delays. Statistical tests find that delays are symmetrically affected by antitrust policies and macroeconomic fluctuations. Our results shed light on the design of enforcement programs against cartels and other forms of conspiracy. Journal of Economic Literature |
| Keywords: | corporate leniency program;cartel;leniency application delays. |
| JEL: | D43 K21 K42 L13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012044&r=com |
| By: | Zhou, J. (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: Colluding firms often exchange private information and make transfers within the cartels based on the information. Estimating the impact of such collusive practices— known as the “lysine strategy profile (LSP)â€â€” on cartel duration is difficult because of endogeneity and omitted variable bias. I use firms’ linguistic differences as an instrumental variable for the LSP in 135 cartels discovered by the European Commission since 1980. The incidence of the LSP is not significantly related to cartel duration. After correction for selectivity in the decision to use the LSP, statistical tests are consistent with a theoretic prediction that the LSP increases cartel duration. Journal of Economic Literature |
| Keywords: | the lysine strategy profile;post-agreement information exchange;within-cartel transfers;monitoring;verification and promotion of compliance;cartel duration;endogenous covariates. |
| JEL: | D43 K21 K42 L13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012009&r=com |
| By: | Engelhardt, Sebastian; Freytag, Andreas; Köllmann, Volker |
| Abstract: | We discuss competition effects and possible regulation of vertical integration in internet-based two-sided markets against the background of the ongoing antitrust allegations against Google. In such markets, network effects and economics of scale often lead to dominating companies which are integrated over several markets. Although implying efficiency gains, the (dynamic) network effects and economics of scale may also create significant barriers to entry. These barriers of entry can be lowered if entrants can appropriate (parts of) the dynamic effects accumulated by the incumbents. At the same time, such externalities reduce incentives to invest in dynamic effects in the first place. Measures by firms that deter multi homing, increase switching costs or create incompatibilities are anti-competitive and should thus be prohibited. Systematic top listing of own products in the search results can leverage market power and reduce competition. However, there is yet no appropriate economic theory on the power’ of search engines. The often used concept of ‘search neutrality’ is not convincing. |
| Keywords: | two-sided markets; Internet; Google; market power; competition policy |
| JEL: | L13 L42 L50 L86 |
| Date: | 2012–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43326&r=com |
| By: | Michael R. Baye (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Babur De los Santos (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: | Organic product search results on Google and Bing do not systematically include information about seller characteristics (e.g., feedback ratings and prices). Consequently, it is often assumed that a retailer’s organic traffic is driven by the prominence of its position in the list of search results. We propose a novel measure of the prominence of a retailer’s name, and show that it is also an important predictor of the organic traffic retailers enjoy from product searches through Google and Bing. We also show that failure to account for the prominence of retailers’ names–as well as the endogeneity of retailers’ positions in the list of search results–significantly inflates the estimated impact of screen position on organic clicks. |
| Keywords: | product search, position, internet, search engines, prominence |
| JEL: | D43 D83 L13 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2012-09&r=com |
| By: | Hackl, Franz; Kummer, Michael E.; Winter-Ebmer, Rudolf; Zulehner, Christine |
| Abstract: | We investigate the effect of market structure on market performance in the market for consumer electronics. This research is novel, because we exploit product life cycle information to build an instrumental variable for the number of firms in a market, a variable which hitherto had to be treated as exogenous in comparable studies on seller-behavior in e-commerce. We combine data from Austria's largest online site for price comparisons with retail-data on whole sale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game. Using this information for 80 digital cameras, we generate instrumental variables based on the shops' entry decisions in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price-leader. -- |
| Keywords: | Retailing,Product Life Cycle,Market Structure,Market Performance,Markup,Price Dispersion |
| JEL: | L11 L13 L81 D43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11084r&r=com |
| By: | Sadowska, M.; Willems, Bert (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: In November 2011 Sweden abolished the uniform national electricity price and introduced separate price zones. This was the result of an antitrust settlement between the Commission and the Swedish network operator, which was accused of discriminating between domestic and export electricity transmission services and segmenting the internal market. Based on this case, we show how the Commission uses competition law enforcement to foster market integration in the energy sector. We find that, even though the Commission’s action under competition rules was contrived and lacked economic depth, the commitment package provides an economically sound, longterm solution to network access and congestion management in Sweden. Such a quick and far-reaching change of Swedish congestion management could not have been achieved by Swedish policymakers or enforcement of the EU sector-specific regulation. |
| Keywords: | competition policy;Article 102 TFEU;commitment decisions;European energy markets;transmission congestion;Swedish network operator. |
| JEL: | K21 K23 K K42 L43 L44 L94 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012043&r=com |
| By: | Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Philpott, Andrew (Department of Engineering Science) |
| Abstract: | Transport constraints limit competition and arbitrageurs' possibilities of exploiting price differences between goods in neighbouring markets, especially when storage capacity is negligible. We analyse this in markets where strategic producers compete with supply functions, as in wholesale electricity markets. For networks with a radial structure, we show that existence of supply function equilibria (SFE) is ensured if demand shocks are suffciently evenly distributed, and solve for SFE in symmetric radial networks with uniform multi-dimensional nodal demand shocks. An equilibrium offer in such networks is identical to an SFE offer in an isolated node where the symmetric number of firms has been scaled by a market integration factor, the expected number of nodes that are completely integrated with a node in the symmetric network. The analysis can be extended to mesh networks (as in electricity systems) although the resulting models do not simplify as in the radial case. |
| Keywords: | Transmission network; Graph theory; Market integration; Wholesale electricity markets |
| JEL: | C72 D43 D44 L91 |
| Date: | 2012–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0945&r=com |
| By: | Pavlyuk, Dmitry |
| Abstract: | During the last two decades the European airport industry is liberalised and turned to competitive market environment. This fact attracts an increasing scientific and practical interest to analysis of airport efficiency and its determinants, as well as different aspects of airport competition. This paper contains a critical review of existing researches in these two areas – airport efficiency and spatial competition among airports. We analysed modern approaches to airport benchmarking, their advantages and shortcomings, and systematised a wide range of related academic studies. We paid special attention to empirical researches of spatial competition as a factor affecting airport efficiency. Despite the fact of a well-developed theory of spatial competition and signs of its growing effects in the airport industry, we discovered a lack of studies devoted to the relationship between airport efficiency and spatial competition. |
| Keywords: | airport efficiency; benchmarking; spatial competition |
| JEL: | L93 D24 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43391&r=com |
| By: | Stefan Arping (University of Amsterdam) |
| Abstract: | In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates. |
| Keywords: | Banking Competition; Soft Budget Constraint Problem; Moral Hazard |
| JEL: | G2 G3 |
| Date: | 2012–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120146&r=com |
| By: | Nistor, Filip |
| Abstract: | The container-shipping industry's poor performance in 2011 and its continued struggles in 2012 are primarily the result of supply and demand imbalance, which triggered intense competition and price wars. Some carriers have begun to recognize the importance of alliances, as reflected by their expanded efforts to collaborate during the past year. This article present how the global rates in container industry had dropped as the carriers added ships in anticipation of an economic recovery, causing overcapacity. Container lines began cutting capacity and raising rates to restore profitability. The article conclude that a way of avoiding for container-shipping lines maritime market fluctuations and increasing opportunities of success in the event of a fierce competition is a strategic alliance. |
| Keywords: | container; alliance; profit; rate |
| JEL: | D74 N70 R41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43157&r=com |
| By: | Peeters T.; Szymanski, S. |
| Abstract: | In 2010 UEFA, the governing body of European soccer, announced a set of financial restraints, that clubs must observe when seeking to enter its competitions, notably the UEFA Champions League. We characterize these “Financial Fair Play” (FFP) regulations as a form of vertical restraint and assess their impact on the intensity of competition in the English Premier League. We build a structural empirical model to show that introducing FFP would substantially reduce competition, resulting in lower average payrolls, while average revenues would hardly be affected. Depending on the exact regime, wage to turnover ratios would decline by 8% to 15%. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2012028&r=com |
| By: | Mélanie Jaeck (Montpellier Business School (CEROM)); Robert Lifran (Montpellier Business School (CEROM)); Hubert Stahn (Aix Marseille University (Aix Marseille School of Economics), CNRS & EHESS) |
| Abstract: | This article explores the economic conditions for the viability of organic farming in a context of imperfect competition. While most research dealing with this issue has adopted an empirical approach, we propose a theoretical foundation. Farmers have a choice between two technologies, the conventional one using two complementary inputs, chemicals and seeds, and the organic one only requiring organic seeds. The upstream markets are oligopolistic and the firms adopt Cournot behavior. The game is solved backward. The equilibrium repartition of the farmers between both sectors is obtained by a free entry condition. Since multiple equilibria could exist, including the non emergence of organic farming, we spell out viability conditions for organic farming. Then, using an "infant industry" argument, we propose several public policy instruments able to support the development of organic farming, and assess their relative efficiency. Results could be useful to assess the conditions of emergence and viability of agricultural innovations in analogous contexts. |
| Keywords: | agricultural inputs, organic farming, imperfect competition, technological choice, free entry, policy design. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1239&r=com |
| By: | Federico Etro (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | With strategic interactions and endogenous entry in a market, opening up to trade creates gains under very general conditions. Under Dixit-Stiglitz preferences and Cournot (or Bertrand) competition, an expansion of the market size induces exit of domestic firms, lower prices and larger production of the surviving firms due to competition from more foreign firms, without resorting to selection effects à la Melitz. This holds also in a 2x2x2 Heckscher-Ohlin model with Cournot (or Bertrand) competition in a sector. I study heterogenous preferences between countries as a source of trade: the country with a relative preference for the differentiated goods becomes a net importer of them facing radical business destruction. Finally, I extend the model to cost heterogeneity à la Melitz. In all cases, the elasticity of the number of firms to market size decreases with the substitutability between goods and reaches 1/2 under Cournot competition with homogenous goods. |
| Keywords: | Gains from trade, Krugman model, Endogenous entry, Comparative advantage, Comparative preference |
| JEL: | F11 F12 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2012:31&r=com |
| By: | Federico Etro (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | I characterize the optimal unilateral trade policy for domestic firms competing in domestic or integrated markets with endogenous entry of foreign firms. Under conditions satisfied in most trade models (as with quasi-linear or Dixit-Stiglitz preferences), the analysis is simplified by a Neutrality Theorem: any policy affecting the profitability of the domestic firm is not going to affect consumers surplus and the strategies of the foreign firms, but changes their number and the profits of the domestic firm. In a domestic market with quantity competition the optimal tariff is positive with linear demand but negative with highly convex demand or Dixit-Stiglitz preferences. In an integrated market the optimal subsidy to domestic production is always positive, independent from the relative size of the domestic market and inversely related to the elasticity of demand. |
| Keywords: | Import tariffs, Production Subsidies, Endogenous entry, Optimal Trade Policy |
| JEL: | F12 F13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2012:32&r=com |