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on Industrial Competition |
| By: | Christopher Gertz (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | I analyze a monopolistic model of quality uncertainty but with the possibility of information acquisition on the consumer side. Information is costly and its amount is chosen by the consumer. The analysis of Bayesian equilibria shows the possibility of three equilibrium classes, only one of which leaves positive utility to the consumer. The classic adverse selection results of these markets are weakened in this situation. I show that cheaper information does not necessarily benefit the consumer but can instead rule out the buyer-friendly and welfare maximizing equilibria. Moreover, making quality search arbitrarily efficient does not lead to sure selling of the high quality product. A sustainable adverse selection effect, though weaker than in the classical model, remains even in the limit. |
| Keywords: | Quality uncertainty, Price signaling, Adverse selection, Information acquisition, Two-sided incomplete information |
| JEL: | C72 D42 D82 D83 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:487&r=com |
| By: | Anderson, Edward; Qian, Cheng |
| Abstract: | We model a situation in which a single firm evaluates competing suppliers and selects just one. Suppliers submit bids involving both price and quality variables. The buyer makes a choice which from the supplier's perspective appears to contain a stochastic element - for example the buyer may have information, which is not shared with the suppliers, and that gives one supplier an advantage in the final choice. We use a discrete choice model of buyer choice (e.g. multinomial logit). Our main result is that the supplier's choice of the quality variables is not affected by the competitive environment. Thus the suppliers compete only on price. We compare this with a second model in which the buyer's weighting on different quality variables is uncertain at the time bids are made. |
| Keywords: | Supplier choice, Quality variables, Nash equilibrium, Types of uncerta inty |
| Date: | 2013–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:syb:wpbsba:2123/9071&r=com |
| By: | Maican, Florin (Research Institute of Industrial Economics (IFN)); Orth, ´Matilda (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We use a dynamic oligopoly model of entry and exit to evaluate how entry regulations affect profitability and market structure in retail. The model incorporates demand and store-level heterogeneity. Based on unique data for all retail food stores in Sweden, we find that the average entry costs for small and large stores are 10 and 18 percent lower, respectively, in markets with liberal compared with restrictive regulations. Counterfactual simulations show that lower entry costs in restrictive markets result in higher entry rates and allow us to quantify the consequences of regulations in light of trade-offs between small and large stores. |
| Keywords: | Imperfect competition; Product differentiation; Retail markets; Entry; Exit; Sunk costs |
| JEL: | L11 L13 L81 |
| Date: | 2013–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0984&r=com |
| By: | Klein, Tobias J.; Lambertz, Christian; Stahl, Konrad O. |
| Abstract: | We study the effects of improvements in market transparency on eBay on seller exit and continuing sellers’ behavior. An improvement in market transparency by reducing strategic bias in buyer ratings led to a significant increase in buyer valuation especially of sellers rated poorly prior to the change, but not to an increase in seller exit. When sellers had the choice between exiting—a reduction in adverse selection—and improved behavior—a reduction in moral hazard—, they preferred the latter because of lower cost. Increasing market transparency improves on market outcomes. |
| Keywords: | Anonymous markets; adverse selection; moral hazard; reputation building mechanisms; market transparency; market design. |
| JEL: | D83 L15 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:426&r=com |
| By: | Phillipe Aghion; Nicholas Bloom; John Van Reenen |
| Abstract: | We survey the theoretical and empirical literature on decentralization within firms. We first discuss how the concept of incomplete contracts shapes our views about the organization of decision-making within firms. We then overview the empirical evidence on the determinants of decentralization and on the effects of decentralization on firm performance. A number of factors highlighted in the theory are shown to be important in accounting for delegation, such as heterogeneity and congruence of preferences as proxied by trust. Empirically, competition, human capital and IT also appear to foster decentralization. There are substantial gaps between theoretical and empirical work and we suggest avenues for future research in bridging this gap. |
| Keywords: | uncertainty |
| JEL: | E3 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepops:36&r=com |
| By: | Hasnas, Irina; Lambertini, Luca; Palestini, Arsen |
| Abstract: | In recent years Open Innovation (OI) processes have been receiving growing attention from the empirical and theoretical economic literature, where a debate is taking place on the aspects of complementarity or substitutability between internal R&D and OI spillover. By means of a differential game approach, we analyze the case of substitutability in an OI setup in a Cournot duopoly where knowledge spillovers are endogenously determined via the R&D process. The game produces multiple steady states, allowing for an asymmetric solution where a firm may trade off the R&D investment against information absorption from the rival. The technical analysis and the numerical simulations point out that the firm which commits to a higher level of OI absorption produces a smaller output and enjoys higher profits than its rival. -- |
| Keywords: | R&D,spillovers,dynamic games |
| JEL: | C73 L13 O31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:111&r=com |
| By: | Hanming Fang (Department of Economics, University of Pennsylvania); Xun Tang (Department of Economics, University of Pennsylvania) |
| Abstract: | Bidders’ risk attitudes have key implications for choices of revenue-maximizing auction formats. In ascending auctions, bid distributions do not provide information about risk preference. We infer risk attitudes using distributions of transaction prices and participation decisions in ascending auctions with entry costs. Nonparametric tests are proposed for two distinct scenarios: first, the expected entry cost can be consistently estimated from data; second, the data does not report entry costs but contains exogenous variations of potential competition and auction characteristics. In the first scenario, we exploit the fact that the risk premium required for entry - the difference between ex ante expected profits from entry and the certainty equivalent .is strictly positive if and only if bidders are risk averse. Our test is based on identification of bidders’ ex ante profits. In the second scenario, our test builds on the fact that risk attitudes affect how equilibrium entry probabilities vary with observed auction characteristics and potential competition. We also show identification of risk attitudes in a more general model of ascending auctions with selective entry, where bidders receive entry-stage signals that are correlated with private values. |
| Keywords: | Ascending auctions, Risk attitudes, Endogenous entry, Tests |
| JEL: | D44 C12 C14 |
| Date: | 2013–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-056&r=com |
| By: | Léautier, Thomas-Olivier; Rochet, Jean-Charles |
| Abstract: | This article examines how rms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where risk averse rms decide on their hedging strategies before their product market strategies. We nd that hedging modi es the pricing and production strategies of rms. This strategic e¤ect is channelled through the risk-adjusted expected cost, i.e., the expected marginal cost under the probability measure induced by shareholders risk aversion. It has opposite e¤ects depending on the nature of product market competition: hedging toughens quantity competition while it softens price competition. Finally, if rms can decide not to commit on their hedging position, this can never be an equilibriumoutcome: committing is always a best response to non committing. In the Hotelling model, committing is a dominant strategy for all rms. |
| Keywords: | Risk Management, Price and Quantity Competition. |
| JEL: | G32 L13 |
| Date: | 2013–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:27644&r=com |
| By: | Marco Marini (Department of Computer, Control and Management Engineering, Università "La Sapienza" Roma); Paolo Polidori (Department of Law, University of Urbino “Carlo Bo”); Alberto Zevi (University of Rome "La Sapienza".); Désirée Teobaldelli (Department of Law, University of Urbino “Carlo Bo”) |
| Abstract: | The aim of this paper is to study the welfare e¤ects of consumer cooperatives in mixed oligopoly markets. We show that under decreasing returns to scale and su¢ ciently high market competition these rms can contribute more to social welfare when acting on behalf of all consumers rather than only one representative consumer. This is because, by coordinating the preferences of consumers, these rms reduce their excessive market output, helping the market to come closer to the rst-best. In all other cases we show that such consumerscoordination is not required to improve welfare. |
| Keywords: | Consumer-owned Firms, Mixed Oligopoly, Collusion, Welfare |
| JEL: | C70 C71 D23 D43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:13_03&r=com |
| By: | Nils Ellwanger; Ron Boschma |
| Abstract: | In economic geography, geographical proximity has been identified as a key driver of M&A activity. In this context, little attention has yet been drawn to the effect of industrial relatedness, which refers to the similarity and complementarity of business activities. We examine 1,855 domestic M&A deals announced between 2002 and 2008 in the Netherlands, and we assess the extent to which geographical proximity and industrial relatedness affect M&A partnering. Our study shows that geographical proximity drives domestic M&A deals, even at very detailed spatial scales like the municipality level. We also found evidence that companies that share the same or complementary industries are more likely to engage in an M&A deal. Logistic regressions show that the effect of industrial relatedness is stronger than the effect of geographical proximity. |
| Keywords: | mergers and acquisitions, Netherlands, geographical proximity, home bias, industrial relatedness |
| JEL: | O18 R00 R11 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:1319&r=com |
| By: | Takahashi, Yuya |
| Abstract: | This paper provides a tractable empirical framework to analyze firm behavior in a dynamic oligopoly when demand is declining over time. I modify Fudenberg and Tirole (1986).s model of exit in a duopoly with incomplete information to a model that can be used in an oligopoly, and combine this with an auxiliary entry model to address the initial conditions problem. I estimate this model with panel data on the U.S. movie theater industry from 1949 to 1955, using variations in TV diffusion rates across households, market structure before the exit game starts, and other market characteristics to identify the parameters in the theater’s payoff function and the distribution of unobservable fixed costs. Using the estimated model, I measure strategic delays in the exit process due to oligopolistic competition and incomplete information. The delay in exit that arises from strategic interaction is 2.7 years on average. Out of these years, 3.7% of this delay is accounted for by incomplete information, while the remaining 96.3% is explained by oligopolistic competition. |
| Date: | 2013–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:424&r=com |
| By: | Aguzzoni, Luca; Argentesi, Elena; Buccirossi, Paolo; Ciari, Lorenzo; Duso, Tomaso; Tognoni, Massimo; Vitale, Cristiana |
| Abstract: | We study the effect of a merger in a dynamic high-technology industry - the videogame market - which is characterized by frequent introduction of new products. To assess the impact of the merger between two large specialist retailers in the UK, we perform a difference-in-differences analysis comparing the price evolution of the merging parties to that of their 7 major competitors on an original sample of 196 videogames belonging to six different consoles. The results of our econometric analyses suggest that there has been a reduction in the general level of prices of both new and pre-owned games after the merger. This decline has been more marked for the merging parties, which suggests that the merger between Game and Gamestation did not lead to a substantial lessening of competition; rather it is consistent with the existence of efficiency gains. -- |
| Keywords: | R&D,Ex-post Evaluation,Videogames market,Retail sector |
| JEL: | K21 L24 L44 D22 O32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:113&r=com |
| By: | Fuentes, Hugo Javier; Zamudio, Andrés |
| Abstract: | Abstract (english) The purpose for the present work is to show how the use of the National Household Income and Expenditure Survey (Encuesta Nacional de Ingresos y Gastos de los Hogares, ENIGH), to make cross sectional data estimations, can deliver contradictory conclusions, depending on the assumptions made for the product being analyzed. To develop this exercise, we consider individually three types of products: water, bottled juices and soft drinks. The results show that assuming each one of these products as homogeneous, regardless of the size with which they are commercialized, delivers important differences on the result of the elasticity being calculated when compared to the case on which each on of the products is categorized based on the size. The estimation shows that when products on their various sizes are considered as homogeneous, the estimates elasticity is sensibly higher as compared to the case where heterogeneity of the products is allowed based on their sizes. The most outstanding case is for soft drinks, where elasticity has an absolute value higher than one when we analyze the homogeneous case, so it would be considered an elastic good. However the result is radically different when soft drinks are classified based on the size of their package. We observe that each type of soft drink represents an inelastic good, meaning that the change on consumption is of lower proportion than the change on price. Abstract (español) El objetivo del presente trabajo es mostrar cómo la utilización de la Encuesta Nacional de Ingresos y Gastos de los Hogares, ENIGH, bajo un estimación de corte transversal, puede dar resultados radicalmente contradictorios, a raíz de los supuestos que se hagan en torno al producto en cuestión. Para realizar este ejercicio se consideró el caso del agua, jugos envasados y refrescos en forma separada. Los resultados muestran que suponer estos tres productos como homogéneos, independiente de la presentación por tamaño que se maneje en su comercialización, o en su caso heterogéneos, considerando ésta para clasificarlo, trae consigo serias repercusiones en las elasticidades calculadas. Las estimaciones muestran que al considerar a cada uno de estos productos como homogéneos, las elasticidades son sensiblemente mayores en comparación al caso en que se les califica como un producto heterogéneo. El caso más representativo es el de los refrescos, donde la elasticidad es mayor a uno en términos absolutos cuando se evalúa como homogéneo; es decir, se consideraría un bien elástico. Un resultado muy distinto se obtiene si se clasifica el refresco por tipo de presentación vía el tamaño. En concreto, se aprecia que los refrescos por presentación son inelásticos; es decir, el cambio en el consumo en términos proporcionales es menor a la variación del precio. |
| Keywords: | price elasticity ,beverage, demand |
| JEL: | D00 D12 H30 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50603&r=com |
| By: | Arvid Raknerud; Bjørn Helge Vatne (Statistics Norway) |
| Abstract: | In this paper, we examine two questions: i) how changes in the funding costs of banks affect retail loan rates and ii) how changes in relative loan rates between banks affect their market shares. To do so, we estimate a simultaneous system of equations model using panel data for six Norwegian bank groups. The data set consists of quarterly data for the period 2002Q1-2011Q3 and includes information on loan volumes and retail (interest) rates for loans to firms and households. The cost of market funding is represented in our analysis by the three-month money market rate and a proxy for market risk; the credit spread on unsecured senior bonds issued by Norwegian banks. Our estimates suggest that a 10 basis points increase in the market rate leads to an approximately 8 basis points increase in retail loan rates. We also find that credit demand from households is more elastic with regard to the loan rate than credit demand from businesses. |
| Keywords: | Credit demand; Pass-through; Funding costs; Monopolistic competition; Panel data; Dynamic factor model |
| JEL: | C33 E27 E43 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:742&r=com |
| By: | Jay Pil Choi (School of Economics, University of New South Wales, Sydney; Department of Economics, Michigan State University); Doh-Shin Jeon (Toulouse School of Economics and CEPR); Byung-Cheol Kim (School of Economics, Georgia Institute of Technology) |
| Abstract: | We study how net neutrality regulations affect high-bandwidth content providers’ investment incentives in quality of services (QoS). We find that the effects crucially depend on network capacity levels. With a limited network capacity, the prioritized delivery services are complements to content providers' investments and can facilitate entry of high-bandwidth content. By contrast, if the network capacity is large enough, the prioritized delivery and QoS investment are substitutes. In either case, the social welfare effects of the prioritized service is ambiguous. In the limited capacity case, the beneficial effects of entry by high-band width content should be weighed against the cost of increasing congestion for other existing content. In the high capacity case, the negative impact of reduced investment incentives can be counterbalanced by the benefit of improved traffic management. Our findings have important implications for the contrasting neutrality regulations across the Atlantic: US FCC treats mobile networks more leniently than fixed networks, while the EU treats them equally. |
| Keywords: | Net neutrality, asymmetric regulation, quality of service, investment incentives, queuing, congestion, mobile/fixed Networks |
| JEL: | L1 L5 O3 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1324&r=com |
| By: | Alan Khee-Jin TAN (Faculty of Law, National University of Singapore) |
| Abstract: | The ASEAN Single Aviation Market or Open Skies project aims to liberalize the air transport industry in ASEAN by 2015. However, the project faces significant obstacles, including non-acceptance by key member states and an incomplete agenda that excludes more ambitious relaxations to market access and ownership and control rules. The ASEAN states’ failure to forge a truly single market and a common negotiating position risks disadvantaging their airlines visà- vis competitors from larger unified markets such as China. |
| Keywords: | Air Transportation, Air Travel, Airline, Aviation |
| JEL: | L93 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:era:wpaper:dp-2013-22&r=com |
| By: | Jeremy Greenwood; David Weiss |
| Abstract: | James A. Schmitz (2005) documents, in a well-known case study, a dramatic rise in productivity in the U.S. and Canadian iron-ore industry following an increase in competition from Brazil. Prior to the increased competition, the industry was not competitive. Surplus in profits was divided between business and unions. Schmitz attributes the increase in productivity to a change in work practices in the industry, as old negotiated union work rules were abandoned or modified. This research formalizes a mechanism through which a rise in competition can lead to increased productivity in the iron-ore industry. |
| JEL: | E13 J51 O47 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19556&r=com |
| By: | Toufic M. El Masri (Leuphana University Lueneburg, Germany) |
| Abstract: | How can small and medium-sized German postal providers ensure nationwide geographical coverage without the aid of the former monopolist? A closer look at the industry revealed that postal providers in Germany engage in different types of cooperation in order to expand their geographical coverage independently from the market leader. In order to shed light on the effects of cooperation, I conducted a theoretical analysis using a spatial economic model complemented by a brief game-theoretical discussion. Moreover, I provide the first descriptive and case study evidence from unique data collected in 2010 and 2011, within the framework of a German postal market survey. I found that small postal providers cooperate with each other in order to extend their geographical service area and to succeed in the market. Furthermore, I also found – in both the theoretical analysis as well as in the evidence – that there is a negative counter-effect stemming from this cooperation. |
| Keywords: | Cooperation, Competition, Germany, Network Industries, Postal Sector |
| JEL: | D24 L22 L51 L97 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:286&r=com |
| By: | Toufic M. El Masri (Leuphana University Lueneburg, Germany) |
| Abstract: | In order to investigate firm survival and the potential for competition in the German postal market, I analyzed key success determinants of market leader competitors. The analysis is based on eight 2011 case studies, in which I conducted in-depth interviews during on-site visits to various postal firms. The analysis is further supported by unique data stemming from a survey I conducted in 2010 for the German postal market. In general, I find that there are possibilities for smaller private firms to succeed and survive in the market despite the natural monopoly occurring within the postal industry. The success of these firms is often based on specialization, cooperation and combining the postal business with another business, such as publishing. |
| Keywords: | Competition, Firm Survival, Germany, Postal Sector, Success |
| JEL: | D24 L51 L97 L22 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:285&r=com |