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on Industrial Competition |
| By: | Michi NISHIHARA (Graduate School of Economics, Osaka University); Takashi SHIBATA (Graduate School of Social Sciences, Tokyo Metropolitan University) |
| Abstract: | This paper investigates the interactions between preemptive competition and leverage. We find that the second mover always leaves the duopoly market before the first mover, although the leader may exit before the followerfs entry. We also see the leverage effects of debt financing increasing firm values and accelerating investment, even in the presence of preemptive competition. In addition to the case with optimal capital structure, we analyze a case with financing constraints that require firms to finance investment costs by debt. Notably, financing constraints can delay preemptive investment and improve firm values in preemptive equilibrium. Indeed, the leaderfs high leverage due to the financing constraints can lower the first-mover advantage and weaken preemptive competition. Especially with strong first-mover advantage, the financing constraint effects can dominate the leverage effects. These findings are almost consistent with empirical evidence that high leverage leads to competitive disadvantage and mitigates product market competition. |
| Keywords: | Preemption; duopoly; capital structure; financing constraints; real options. |
| JEL: | C73 G31 G33 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1305&r=com |
| By: | Cheikbossian, Guillaume (University of Montpellier, TSE); Mahenc, Philippe (University of Montpellier) |
| Abstract: | This paper analyzes how the stability of the tacit cooperation within a fringe of sev- eral identical ?rms is a¤ected by the presence of a more e¢ cient ?rm which does not take part in their cooperative agreement. The model assumes that the ?rms of the fringe adopt ?stick and carrot?strategies à la Abreu (1986, 1988) to support cooperation, while the outside ?rm plays its one-period best response function to these strategies, regardless of the history of play. Assuming a linear demand function and constant marginal costs, we then obtain conditions for the coopera- tion within the fringe to be sustainable and focus on the most cooperative symmetric punishment (MCSP) that sustains cooperation. We show that the MCSP is harsher when the number of ?rms involved in the agreement is relatively large or when their relative cost disadvantage is relatively small. However, both a larger number of ?rms and a larger cost disadvantage make it more di¢ cult to sustain the cooperation. |
| Keywords: | Repeated Game; Tacit Collusion; Optimal Punishments; Cost Asymmetry, Outsider |
| JEL: | C73 D43 L13 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:27138&r=com |
| By: | Kyoo il Kim; Amil Petrin |
| Abstract: | We develop simple tests for endogenous prices arising from omitted demand factors in discrete choice models. Our approach only requires one to locate testing proxies that have some correlation with the omitted factors when prices are endogenous. We use the difference between prices and their predicted values given observed demand and supply factors. If prices are exogenous, these proxies should not explain demand given prices and other explanatory variables. We reject exogeneity if these proxies enter significantly in utility as additional explanatory variables. The tests are easy to implement as we show with several Monte Carlos and discuss for three recent demand applications. |
| JEL: | C3 L0 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19011&r=com |
| By: | Cavagnac, Michel; Cheikbossian, Guillaume |
| Abstract: | In a two-stage game with three firms and two countries, we study the profitability of a domestic merger in the context of an international oligopoly game with differentiated products and in a strategic trade policy environment. In contrast to a completely unregulated economy, we show that the domestic merger under Cournot competition is always profitable to the host country irrespective of the degree of product differentiation. Furthermore, it is also profitable to the competing country - hosting one firm only if products are sufficiently differentiated. Under Bertrand competition the merger is always profitable to both countries independently of the product range rivalry. But in a strategic trade environment it is more profitable to the country in which the merger occurs than to the other country. |
| Keywords: | , |
| JEL: | D43 F12 F13 L13 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:27139&r=com |
| By: | Jeitschko, Thomas D.; Zhang, Nanyun |
| Abstract: | The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on downstream innovation. The focus of this paper is on downstream product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that final demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product differentiation, patent pools can adversely affect welfare by reducing the incentives towards product development and product market competition|even with perfectly complementary patents. The analysis modifies and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals that are characterized by tacit knowledge and incomplete patents. -- |
| Keywords: | Patent Pools,Research and Development,Innovation,Tacit Knowledge,BioTechnology,Pharmaceutical |
| JEL: | O3 L1 L2 L4 L6 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:92&r=com |
| By: | Herrera Saavedra, Juan Pablo |
| Abstract: | Este documento analiza a la luz de una situación monopólica, el efecto sobre el bienestar de los consumidores derivado de cambios en la magnitud de la elasticidad precio de la demanda. En el artículo se asume una función de demanda con elasticidad precio de la demanda constante y rendimientos constantes a escala asociados a la firma productora del bien o servicio. Se encuentra que entre más elástico sea el mercado, mayor será la porción de excedente del consumidor que es tomado por la firma, en términos relativos al excedente del consumidor en una situación perfectamente competitiva. This document analyzes since a monopolistic situation the effect in terms of consumer welfare derived of changes in the price elasticity of demand. The paper assumes a constant price elasticity of demand function and constant return of scale associated with the seller of the service of good firm. It is found that a greater level of elasticity, greater the level of profits of the monopolistic firm in relative terms to the consumer surplus in perfect competition. |
| Keywords: | Monopoly, price elasticity of demand, computational simulation, welfare, consumer surplus. |
| JEL: | D01 D11 D22 D42 D69 |
| Date: | 2013–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46699&r=com |
| By: | Sue Mialon; Samiran Banerjee |
| Abstract: | We provide a new model of platform competition on the Internet and analyze the effect of last-mile access charges on market outcomes. Consumers subscribe to two vertically related platforms, an Internet service provider (ISP) and a content network platform (CNP), to reach content providers (CPs). CPs interact with consumers via CNPs. Local ISPs provide an essential input: the internet connection for consumers and the last-mile access for the CNPs. The effects of access regulation that lowers the ISPs' last-mile access charges depend on (i) how much consumers value the network services, (ii) how much an increase in the Internet price lowers CNPs' fees from CPs, and (iii) the elasticities of consumer demand for the Internet with respect to price and network externality. When consumers' valuation of the network services is very high, the market for Internet connection is fully covered and access regulation unambiguously improves welfare since it lowers the fees for CPs without affecting consumer demand. When consumers' valuation is very low, access regulation does not have any impact because ISPs optimally set the access charge at zero. When consumers' valuation is moderate and the CNPs' fee reduction in response to a higher Internet price is large, access regulation lowers not only the fees from CPs but also consumer Internet prices. Hence, the "seasaw principle" between consumer Internet price and access charge breaks down in this case, and access regulation unambiguously improves welfare for consumers and CPs. On the other hand, if CNPs' fee adjustment is minimal, access regulation induces a higher consumer internet price and the welfare implication of access regulation is ambiguous. Access regulation improves welfare in this case if consumer demand responds more to the change in network externality than the change in price. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:1201&r=com |
| By: | Pillai, Unni; McLaughlin, Jamison |
| Abstract: | We develop a model of competition in the solar panel industry. Solar firms manufacture panels that are differentiated both vertically and horizontally, and compete by setting quantities. The equilibrium of the model is consistent with a set of stylized facts that we document, including variation in prices, markups and market shares across firms. We calibrate the model using a new dataset data on prices, costs and shipments of leading solar companies, as well as solar sales in four leading markets. The calibrated model is applied to evaluate the impact of a decline in the price of polysilicon, a key raw material used in the manufacture of solar panels, on the equilibrium price of solar panels. |
| Keywords: | Solar, Photovoltaics, Competition, Polysilicon |
| JEL: | L11 Q40 Q42 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46655&r=com |
| By: | Liran Einav; Chiara Farronato; Jonathan D. Levin; Neel Sundaresan |
| Abstract: | Consumer auctions were very popular in the early days of internet commerce, but today online sellers mostly use posted prices. Data from eBay shows that compositional shifts in the items being sold, or the sellers offering these items, cannot account for this evolution. Instead, the returns to sellers using auctions have diminished. We develop a model to distinguish two hypotheses: a shift in buyer demand away from auctions, and general narrowing of seller margins that favors posted prices. Our estimates suggest that the former is more important. We also provide evidence on where auctions still are used, and on why some sellers may continue to use both auctions and posted prices. |
| JEL: | D02 D43 D44 D82 L13 L86 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19021&r=com |
| By: | López-Morell, Miguel A.; Segreto, Luciano |
| Abstract: | Mercury has been one of the most persistent cases in contemporary history of international market regulations and this in spite of its having been affected by important technological changes and the regular discovery of new deposits. This paper offers an approach to the least known period, although perhaps the one in which the greatest rises in process and production occurred as a consequence of market manipulation. The period coincides with a series of agreements between the Spanish and the Italian producers and the outcome was a worldwide cartel known as “Mercurio Europeo” which came into being in 1928. The aims of this work will, therefore, be first to describe the features of the various stages of development of the international mercury market during the first half of the twentieth century, with emphasis on the characteristics and conditioning factors in each period. Secondly, the objective is to analyze the various market agreements that came about, the effectiveness of the clauses therein, the construction of distribution networks and the influence that the increase in production had on other mines and on certain technological developments. |
| Keywords: | Mercury, Cartels, International trade, history |
| JEL: | D43 F1 F12 N54 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46772&r=com |