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on Industrial Competition |
| By: | Lucas Herrenbrueck (Simon Fraser University) |
| Abstract: | Models of price posting by firms and search by consumers often feature equilibria with endogenous price dispersion. However, such equilibria are fragile in the sense that an individual firm’s decision problem is not concave (or even well-formed) outside of equilibrium. I simulate various procedures firms may use to update their prices sequentially. I find that the benchmark model performs surprisingly well, but that substantial differences in the level, volatility, and dispersion of profits remain even with as many as 100 firms. Certain procedures for price updating lead to “odd” results such as cyclicality or excessive volatility of prices and profits. When cost dispersion becomes large, prices become less volatile as they are more closely tied to costs. |
| Keywords: | Simulation; search frictions; Burdett-Judd pricing; Edgeworth cycles; disequilibrium dynamics |
| JEL: | D21 D43 D83 |
| Date: | 2015–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp15-07&r=com |
| By: | Jos Jansen (Aarhus Universtity and Max Planck Institute for Research on Collective Goods); Andreas Pollak (University of Cologne) |
| Abstract: | We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where both firms receive information with some probability, we show that firms selectively disclose information in equilibrium in order to influence their competitor’s product-market strategy. Subsequently, we analyze the firms’ behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, in our experiment, subjects’ product-market conduct is largely consistent with theoretical predictions. |
| Keywords: | common value, product differentiation, Asymmetry, Duopoly, information disclosure, skewed distribution, Incomplete Information, laboratory experiment, Cournot competition, Bertrand competition |
| JEL: | D82 L13 C92 D83 D22 M4 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2015_09&r=com |
| By: | Jos Jansen (Department of Economics and Business Economics, Aarhus University, Denmark) |
| Abstract: | Competitive pressure is lower in markets where goods are more differentiated. I analyze how a change in the degree of horizontal product differentiation affects the incentives of duopolists to disclose quality information. If disclosure is costly, then a firm discloses high qualities but conceals low qualities in equilibrium. The higher the disclosure cost, the higher the equilibrium threshold below which firms conceal quality information. I show that the effect of product differentiation on quality disclosure depends on the cost of disclosure. For low (high) disclosure costs, a firm discloses more (less) quality information if goods become more differentiated. |
| Keywords: | Hotelling model, quality, transportation cost, product differentiation, information disclosure, disclosure cost, competitive pressure |
| JEL: | D82 D83 L13 L15 M31 |
| Date: | 2015–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2015-15&r=com |
| By: | Xavier Méra (Granem - Groupe de Recherche ANgevin en Economie et Management - UA - Université d'Angers - Agrocampus Ouest - Institut National de l'Horticulture et du Paysage) |
| Abstract: | Ludwig von Mises and Murray Rothbard tended to emphasize the same requirement for a monopoly price to emerge, as far as the demand schedule for the monopolized good is concerned, in the long run and in the immediate run. This is problematic because, as this paper explains, their criterion of a seller or a cartel of sellers facing an " inelastic demand " above the " competitive price " (Mises) or the " free-market price " (Rothbard) is only required in the immediate run. This has consequences in regard to the question of the limits to monopoly pricing. The inelasticity of demand criterion of both authors left less room for monopoly prices in their theoretical constructs of a hampered market economy than there really is. If one wants to spare the bulk of consumers from the effects of factor misallocation, refraining from granting monopolistic privileges becomes even more urgent than what both authors suggested. |
| Date: | 2015–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01182289&r=com |
| By: | Ibañez-Zarate, Guiomar |
| Abstract: | This study analyses the effect of competition intensity as a determinant of cooperative partner choice. To the best of our knowledge, this is the first attempt to study the relationship between research and development (R&D) cooperation and direct measures of competition intensity. Competition intensity is measured by the number of competitors in the firm's core market and the price elasticity reported by firms. Using information from German firms for 2011, our results show that competition intensity is a determinant for different types of collaborative innovation (e.g., with customers, suppliers, competitors, universities, or firms of the same group). Overall, the effect of competition is negative for cooperation with universities, customers and firms of the same group, and positive for cooperation with suppliers and competitors (and ambiguous for cooperation with consultants). Competition negatively affects partnerships with customers and universities, which look for radical innovation and involve high risks of disclosure. By contrast, competition positively influences partnerships with suppliers and competitors, which pursue incremental innovation and which involve a symmetric risk of information disclosure. Keywords: innovation; R&D cooperation; competition intensity; appropriability conditions. JEL Classification Numbers: L10; O32; O33; L60. |
| Keywords: | Investigació industrial, Competència econòmica, Innovacions tecnològiques, Empreses -- Alemanya, Col·laboració empresa-universitat, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/252214&r=com |
| By: | Jun Honda (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | In many procurement auctions, entrants determine whether to participate in auctions accounting for their roles of intermediaries who search for the best (or the cheapest) input suppliers. We build on a procurement auction model with entry, combining with intermediary search for suppliers. The novel feature is that costs of bidders are endogenously determined by suppliers who strategically charge input prices. We show the existence of an equilibrium with price dispersion for inputs, generating cost heterogeneity among bidders. Interestingly, the procurement cost may rise as the number of potential bidders increases. |
| Keywords: | Information Frictions, Search, Procurement, Auction, Vertical Relations, Entry Deterrence, Price Dispersion |
| JEL: | D43 D44 D83 L13 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp203&r=com |
| By: | Gorodnichenko, Yuriy (University of California, Berkeley); Svejnar, Jan (Columbia University); Terrell, Katherine (University of Michigan) |
| Abstract: | Our estimates, based on large firm-level and industry-level data sets from eighteen countries, suggest that FDI and trade have strong positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. Moreover, our results indicate that the spillover effects can be detected with micro data at the firm-level, but that using linkage variables computed from input-output tables at the industry level yields much weaker, and usually insignificant, estimated effects. These patterns are consistent with spillover effects being rather proximate and localized. |
| Keywords: | innovation, FDI, spillovers, horizontal and vertical linkages, emerging markets, foreign competition |
| JEL: | F23 M16 O16 P23 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9259&r=com |
| By: | Pull, Kerstin; Stadler, Manfred |
| Abstract: | We study product market competition between firm owners (principals) where workers (agents) decide on their efforts and, hence, on output levels. Two worker compensation schemes are compared: a piece rate compensation as a benchmark when workers' output performance is verifiable, and a contest-based compensation scheme with variable, revenue-based prizes when it is only verifiable who the best performing worker is, i.e., only 'contest performance' is verifiable.Without rivalry between firms, the two compensation schemes lead to the same results. In case of product market competition, however, contest-based compensation schemes lead to more employment, more production, and lower firm profits. The reduction in profits represents the cost of being only able to verify workers' contest performance instead of output performance. |
| Keywords: | worker compensation,piece rates,team contests,revenue sharing,strategic competition |
| JEL: | C72 L22 M52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:85&r=com |
| By: | Cassey LEE (Institute of Southeast Asian Studies, Singapore) |
| Abstract: | This essay examines the nature of competition law objectives by visiting some of the theoretical and philosophical foundations underlying competition law. The key objectives of competition law are welfare, efficiency, and free and fair competition. There are distributive dimensions in competition law that are related to different notions of welfare (consumer surplus and producer surplus). The different types of efficiencies are subject to trade-offs – within a given time (allocative versus productive) and inter-temporally (static versus dynamic). Theoretical, conceptual, and philosophical frameworks also influence competition law objectives. |
| Keywords: | Competition, Competition Law |
| JEL: | K21 L40 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:era:wpaper:dp-2015-54&r=com |
| By: | David Spector (PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics) |
| Abstract: | A number of collusive agreements involve the exchange of self-reported sales data between firms, which use them to monitor compliance with a target market share allocation. This paper shows that such communication between competitors may facilitate collusion even if all private information becomes public after a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars as a tool for mutual disciplining. In some cases, efficient collusion cannot occur unless firms are able to engage in such communication. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01119959&r=com |
| By: | Nikolaus Fink; Philipp Schmidt-Dengler (WIFO); Konrad Stahl; Christine Zulehner (WIFO) |
| Abstract: | Cartels were legal to a large extent in Austria until the country's EU accession in 1995. We examine archival material on registered horizontal cartels to learn about their inner working. Applying content analysis to legally binding cartel contracts, we comprehensively document different collusion methods along the lines described by Stigler (1964). Quota cartels employ regular reporting schemes and use compensation mechanisms for departures from set quotas. Specialisation cartels divide markets and rely the least on information exchange and punishment. Price and payment condition cartels primarily aim to prevent secret price cuts, requiring information provision upon request, allow for discretionary decision-taking and (sometimes immediate) punishment. These stylised facts on the contractual arrangements suggest that the possibility to write legally binding agreements was employed to address the usual obstacles to sustaining collusion. |
| Keywords: | Collusion, Cartels, Legal Cartels, Contracts |
| Date: | 2015–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2015:i:501&r=com |
| By: | Bronwyn H. Hall; Christian Helmers; Georg von Graevenitz |
| Abstract: | We analyze the effect of patent thickets on entry into technology areas by firms in the UK. We present a model that describes incentives to enter technology areas characterized by varying technological opportunity, complexity of technology, and the potential for hold?up in patent thickets. We show empirically that our measure of patent thickets is associated with a reduction of first time patenting in a given technology area controlling for the level of technological complexity and opportunity. Technological areas characterized by more technological complexity and opportunity, in contrast, see more entry. Our evidence indicates that patent thickets raise entry costs, which leads to less entry into technologies regardless of a firm?s size. |
| Keywords: | Patenting, Entry, Patent Thickets |
| JEL: | K11 L20 O31 O34 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cgs:wpaper:60&r=com |
| By: | KAWAHAMA Noboru |
| Abstract: | The number of disputes relating to standard essential patents (SEPs), in which patent holders submit statements to commit to granting licenses on a fair, reasonable and non-discriminatory (FRAND) basis, have increased. The exercise of SEPs tends to cause problems such as hold-ups and royalty stacking and needs to be constrained somehow. Despite wide recognition of the need to address these problems, devising measures to resolve the issue has not been an easy task since various laws and principles are involved. These include patent and competition laws, as well as the opaque nature of the patent policies adopted by standard-setting organizations in light of relevant contract laws. The Intellectual Property High Court of Japan's decision in the Apple vs. Samsung case on May 16, 2014 provided partial solutions with regards to patent and contract law. However, problems have remained in the field of competition law, such as the question of how the exercise of patents charged with a FRAND commitment needs to be regulated under competition law. In this paper, the author first examines standard setting activities in light of competition law and then assesses the role of FRAND commitments in the standard-setting process. Based on this analysis, the baseline by which reasonable royalty rates should be calculated under competition law is clarified. This is followed by a proposal of an analytical framework for abusive conduct that departs from the above-prescribed baseline and appears to be—or clearly constitutes—a violation of competition law. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:15043&r=com |
| By: | Ivaldi, Marc; Zhang, Jiekai |
| Abstract: | This paper studies the advertising competition in the French free TV broadcasting industry, following a decision of the French anti-trust authority on the acquisition of two channels by the most active media group of the sector. After specifying a structural model of oligopoly competition of free TVs, we identify the shape and magnitude of the feedback loop between TV viewers and advertisers using French market data from March 2008 to December 2013. We implement a simple procedure to test the market conduct of TV channels, and identify that the nature of competition is of Cournot type in this industry. Finally, based on a series of competitive analysis, we conclude that the approved acquisition has not significantly affected the industry's competitiveness, and that the implemented behavioral remedies seems to be efficient in protecting the consumer surplus. |
| Keywords: | Advertising, competition, media, TV, two-sided market, market conduct, behavioral remedies |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29319&r=com |
| By: | Ivaldi, Marc; Sokullu, Senay; Toru, Tuba |
| Abstract: | This paper analyzes the rationale of airport business models. First, it provides evidence that the airports should be considered as two sided markets because of significant network externalities between the airlines and the passengers. This result invalidates the traditional approach where the airport-airline-passenger relationship is considered as vertically integrated, taking passengers as final consumers. Second, a testing procedure aimed at eliciting the real business model of airports demonstrates that the major U.S. airports do not internalize the externalities existing between airlines and passengers. We find that these airports set profit maximizing prices for the non-aeronautical services to passengers and Ramsey prices for the aeronautical services to airlines. Given these results, we conduct a welfare analysis by simulating the implementation of profit maximizing prices when an airport fully accounts for the two-sidedness of its activities. In particular, we show that the impact on social welfare is not independent on the specific features of each airport and that the privatization of airports cannot be considered as the only solution for airports. |
| Keywords: | Two-sided markets, Airport pricing, Airport regulation |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29375&r=com |
| By: | Estelle Malavolti (TSE - Toulouse School of Economics - Toulouse School of Economics, LEEA - ENAC - Laboratoire d'Economie et d'Econométrie de l'Aérien - PRES Université de Toulouse - Ecole Nationale de l'Aviation Civile) |
| Abstract: | Big airports profits are more and more often coming from commercial activities such as retailing. However, commercial services are relatively far from the original mission of the airport: providing airlines with aviation services such as ground handling, terminal management or airside operations, and being regulated for that because of an obvious dominant position with respect to airlines. For this reason, one can advocate for the separation of the two activities, i.e. for a dual till approach, in which only the aeronautical activity is regulated. We, instead, suggest that a single till regulation, in which the total profit of the airport is examined, is relevant because it allows to take into account the externalities existing between retailing and aeronautical services. Using a two-sided market approach (Armstrong 2006, Rochet-Tirole 2003, 2006), we show that the airport is a platform which makes the shops and the passengers meet. The retailing activity depends on how many passengers are circulating and connecting at the airport, as well as the time they spent in the airport, while passengers value the least connecting time as possible. We show that the aeronautical tax can be either higher or lower under single till depending on whether the impact of the passengers demand or of the waiting time is the more important for the shops. |
| Date: | 2015–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01109445&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: | vertical contracts, two part tariff, buyer power, retailers, differentiated products. |
| JEL: | C12 C33 L13 L81 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29303&r=com |
| By: | Dieter Pennerstorfer (WIFO); Philipp Schmidt-Dengler (WIFO); Nicolas Schutz; Christoph R. Weiss; Biliana Yontcheva |
| Abstract: | We examine the relationship between information and price dispersion in the retail gasoline market. We first show that the clearinghouse models in the spirit of Stahl (1989) generate an inverted-U relationship between information and price dispersion. We construct a new measure of information based on precise commuter data from Austria. Regular commuters can freely sample gasoline prices on their commuting route, providing us with spatial variation in the share of informed consumers. We use detailed information on gas station level price to construct various measures of price dispersion. Our empirical estimates of the relationship are in line with the theoretical predictions. |
| Date: | 2015–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2015:i:502&r=com |
| By: | Raphaël Homayoun Boroumand (City University London - City University London, ESG Research Lab - ESG Management School); Stéphane Goutte (Banque-Finance - LED - Laboratoire d'Economie Dionysien - Université Paris VIII - Vincennes Saint-Denis, ESG Research Lab - ESG Management School); Simon Porcher (LSE - Department Mathematics [London] - LSE - London School of Economics); Thomas Porcher (Centre d'etudes et de recherches comparatistes - CERC - Centre d'Études et de Recherches Comparatistes - Université Paris III - Sorbonne nouvelle, ESG Research Lab - ESG Management School) |
| Abstract: | This paper uses a regime-switching model that is built on mean-reverting and local volatility processes combined with two Markov regime-switching processes to understand the market structure of the French fuel retail market over the period 1990-2013. The volatil-ity structure of these models depends on a first exogenous Markov chain, whereas the drift structure depends on a conditional Markov chain with respect to the first one. Our model allows us to identify mean reverting and switches in the volatility regimes of the margins. In the standard model of cartel coordination, volatility can increase competition. We find that cartelization is even stronger in phases of high volatility. Our best explanation is that consumers consider volatility in prices to be a change in market structure and are there-fore less likely to search for lower-priced retailers, thus increasing the market power of the oligopoly. Our findings provide a better understanding of the behavior of oligopolies. |
| Date: | 2014–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01090837&r=com |