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on Industrial Competition |
| By: | De Francesco, Massimo A.; Salvadori, Neri |
| Abstract: | The paper extends the analysis of price competition among capacity constrained sellers beyond duopoly and symmetric oligopoly. The main focus is on the equilibrium payoffs under triopoly. The paper also includes insightful examples highlighting features of equilibrium which can arise in a triopoly but not in a duopoly. Most notably, the supports of the equilibrium strategies need not be connected, nor need be connected the union of the supports; further, an atom may exist for a firm different from the largest one. |
| Keywords: | Bertrand-Edgeworth; Price game; Oligopoly; Triopoly; Mixed strategy equilibrium |
| JEL: | C72 L13 |
| Date: | 2015–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64638&r=com |
| By: | Achim I. Czerny (Faculty of Economics and Business Administration, VU University Amsterdam, the Netherlands); Erik T. Verhoef (Faculty of Economics and Business Administration, VU University Amsterdam, the Netherlands); Anming Zhang (University of British Columbia, Canada) |
| Abstract: | This paper distinguishes uncertainty types that differ continuously with respect to the degree to which uncertainty affects the optimal price/price markup or optimal quantity. A monopoly example is used to show that seemingly strong assumptions on functional forms can represent a wide variety of different scenarios, while (implicit) assumptions on continuous uncertainty types can lead to quite special results. Monopoly examples of the newsboy problem type are further used to show that the optimal capacity level and the optimal composition of capacity in terms of the number and size of production units depends crucially on the type of uncertainty and the employed functional forms for utilities and costs. |
| Keywords: | Continuous uncertainty types; demand uncertainty; cost uncertainty; monopoly; newsboy problem |
| JEL: | D42 D80 L91 |
| Date: | 2015–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150065&r=com |
| By: | Christian Trudeau (Department of Economics, University of Windsor); Zheng Wang (Capital University of Business and Economics) |
| Abstract: | Recent technological changes have made it easy for firms to collect data on their consumers, which in turns allows them to improve the efficiency of their R&D. We explore the strategic interaction that occurs when two firms compete in a vertically-differentiated market to acquire this data and invest in R&D to set the quality of their product. Among our results, we find that if the initial quality lead is not too large, there exists equilibria where the laggard is able to reverse the lead by being particularly aggressive in acquiring this consumer data. While total welfare is higher when the initial leader maintains its lead, consumers prefer leapfrogging. |
| Keywords: | consumer data, vertical differentation, quality race, leapfrogging |
| JEL: | C72 L11 L13 L41 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:wis:wpaper:1501&r=com |
| By: | Alessia Lo Turco; Daniela Maggioni |
| Abstract: | We explore the role of firm and local product-specific capabilities in fostering the introduction of new products in the Turkish manufacturing. Firms' product space evolution is characterised by strong cognitive path dependence which, however, is relaxed by firm heterogeneity in terms of size, efficiency and international exposure. The introduction of new products in laggard Eastern regions, which is importantly related to the evolution of their industrial output, is mainly affected by firm internal product specific resources. On the contrary, product innovations in Western advanced regions hinge relatively more on the availability of suitable local competencies. |
| Keywords: | Product relatedness, Firm heterogeneity, Product Innovation |
| JEL: | D22 O53 O12 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:1517&r=com |
| By: | Rabah Amir (University of Iowa [Iowa] - University of Iowa); David Encaoua (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Yassine Lefouili (Toulouse School of Economics - CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS) |
| Abstract: | This paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain. We provide sufficient conditions of a general nature under which the licensor prefers to use a per-unit royalty contract. In particular we show that this is the case for the holders of weak patents if the strategic effect of an increase in a potential licensee's unit cost on the equilibrium industry profit is positive. The latter condition is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. differentiated) products under general assumptions on the demands faced by firms. As a byproduct of our analysis, we contribute to the literature on the cost paradox in oligopoly by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-01087234&r=com |
| By: | Bonnet, Céline; Dubois, Pierre |
| Abstract: | Using typical demand data on differentiated products markets, we show how to identify and estimate vertical contract terms modelling explicitly the buyer power of downstream firms facing two part tariff offered by the upstream firms. We consider manufacturers and retailers relationships with two part tariff with or without resale price maintenance and allow retailers to have a buyer power determined by the horizontal competition of manufacturers. Our contribution allows to recover price-cost margins at the upstream and downstream levels as well as fixed fees of two-part tariff contracts using the industry structure and estimates of demand parameters. Empirical evidence on the market for bottles of water in France shows that two part tariff contracts are used without resale price maintenance and that the buyer power of supermarket chains is endogenous to the structure of manufacturers competition. We are able to estimate total fixed fees and profits across manufacturers and retailers. |
| Keywords: | buyer power; differentiated products; retailers; two part tariff; vertical contracts |
| JEL: | C12 C33 L13 L81 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10623&r=com |
| By: | di Cosmo; Lynch, Muireann A. |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp497&r=com |
| By: | Blázquez de Paz, Mario (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Capacity constraints on transmissions of electricity are raising an increasing policy concern as electricity markets are integrated around the world. But our understanding of the workings of such markets is still limited. The purpose of this paper is to highlight the impact of transmission capacity constraints and transmission costs on electricity market auctions. In the presence of transmission capacity constraints, the equilibrium is asymmetric even when the suppliers are symmetric in generation capacity and costs. An increase in transmission capacity induces non-monotonic changes in firms’ profits. In the presence of transmission constraints and zero transmission costs, an increase in transmission capacity is pro-competitive; in contrast, then the transmission costs are positive, an increase in transmission capacity could be anti-competitive. |
| Keywords: | Electricity auctions; Transmission capacity constraints; Transmission |
| JEL: | D43 D44 L13 L94 |
| Date: | 2015–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1070&r=com |
| By: | Jorge Balat; Juan E. Carranza; Juan D. Martin |
| Abstract: | In this paper we formulate a dynamic multi-unit auction model to characterize bidding behavior in hydro power dominated electricity markets. Our model implies that, in order to maximize expected profits, hydro producers will submit bid prices above its marginal production costs that account for the intertemporal opportunity cost of water and the expected strategic effects of bids on rivals’ behavior. We test the predictions of our model against data of the Colombian electricity market, where hydro producers hold 63% of total installed capacity, and find evidence consistent with both dynamic and strategic behavior. |
| Keywords: | Dynamic auction model, Bidding behavior, Market power, Electricity markets. |
| JEL: | L25 D22 D44 |
| Date: | 2015–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:012906&r=com |
| By: | Tomas Havranek; Diana Zigraiova |
| Abstract: | The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition-stability nexus reported in 31 studies and analyze the literature using meta-analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, even when corrected for publication bias and potential misspecifications. |
| Keywords: | Bank competition, Bayesian model averaging, financial stability, meta-analysis, publication selection bias |
| JEL: | C11 C83 G21 L16 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2015/02&r=com |
| By: | Dunn, Abe (U.S. Bureau of Economic Analysis); Shapiro, Adam Hale (Federal Reserve Bank of San Francisco) |
| Abstract: | We study the impact of competition among physicians on service provision and patients’ health outcomes. We focus on cardiologists treating patients with a first time heart attack treated in the emergency room. Physician concentration has a small, but statistically significant effect on service utilization. A one-standard deviation increase in cardiologist concentration causes a 5 percent increase in cardiologist service provision. Cardiologists in more concentrated markets perform more intensive procedures, particularly, diagnostic procedures—services in which the procedure choice is more discretionary. Higher concentration also leads to fewer readmissions, implying potential health benefits. These findings are potentially important for antitrust analysis and suggest that changes in organizational structure in a market, such as a merger of physician groups, not only influences the negotiated prices of services, but also service provision. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2015-07&r=com |
| By: | Takayuki Mizuno (National Institute of Informatics, Department of Informatics, SOKENDAI, PRESTO, Japan Science and Technology Agency, The Canon Institute for Global Studies,); Takaaki Ohnishi (Graduate School of Information Science and Technology, University of Tokyo, The Canon Institute for Global Studies,); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies) |
| Abstract: | We investigate the structure of global inter-firm linkages using a dataset that contains information on business partners for about 400,000 firms worldwide, including all the firms listed on the major stock exchanges. Among the firms, we examine three networks, which are based on customer-supplier, licensee-licensor, and strategic alliance relationships. First, we show that these networks all have scale-free topology and that the degree distribution for each follows a power law with an exponent of 1.5. The shortest path length is around six for all three networks. Second, we show through community structure analysis that the firms comprise a community with those firms that belong to the same industry but different home countries, indicating the globalization of firms’ production activities. Finally, we discuss what such production globalization implies for the proliferation of conflict minerals (i.e., minerals extracted from conflict zones and sold to firms in other countries to perpetuate fighting) through global buyer-supplier linkages. We show that a limited number of firms belonging to some specific industries and countries plays an important role in the global proliferation of conflict minerals. Our numerical simulation shows that regulations on the purchases of conflict minerals by those firms would substantially reduce their worldwide use. |
| Keywords: | Global supply chain, Inter-firm network, Scale-free, Community detection, Conflict minerals |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:053&r=com |
| By: | Raffo López Leonardo |
| Abstract: | This article presents a theoretical model to explain the performance of illicit drug markets. The analytical framework is based on the oligopoly model of Poret and Téjedo (2006), but the latter is extended in a crucial respect: the influence of drug trafficking networks in the illicit drug markets is considered. The proposed model indicates that Poret and Téjedo were correct: the aggregate quantity of drugs sold is negatively affected by the intensity of the law enforcement policies applied and positively affected by the number of traffickers in the market. We also determined that the individual and aggregate sales in the market are positively affected by the network’s average density. Our model is useful for explaining the failure of the war against drugs to halt the reproduction and expansion of illegal activities at a global level during the three past decades. |
| Keywords: | Keywords: drug trafficking, illegal markets, law enforcement, social networks, gametheory, oligopoly |
| JEL: | K42 D43 L13 C72 D85 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000149:012905&r=com |