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on Industrial Competition |
| By: | Ioannis Pinopoulos (Department of Economics, University of Macedonia) |
| Abstract: | We consider an upstream supplier who bargains with two cost-asymmetric downstream firms over the terms of interim observable two-part tariff contracts: contracts are initially secret (acceptance decisions are based on beliefs) but downstream firms observe the accepted contract terms before competing in prices. We show that the more efficient downstream firm pays a higher input price than its less efficient rival, a finding that is in stark contrast to the previous findings in the literature on input price discrimination with two-part tariff contracts. We also show that a ban on input price discrimination will reduce both consumer and total welfare when the upstream supplier bargains the common two-part tariff contract with the less efficient firm. This result is interesting from a policy perspective since it implies that even though under discriminatory input prices the upstream supplier favors the “wrong” firm, non-discriminatory input pricing can make things even worse in terms of welfare. |
| Keywords: | Vertical relations, input price discrimination, two-part tariffs, bargaining, welfare. |
| JEL: | D4 L1 L4 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2017_01&r=com |
| By: | Johansen, Bjørn Olav (Department of Economics, University of Bergen, Norway); Vergé, Thibaud (CREST, ENSAE, Université Paris-Saclay and Norwegian School of Economics) |
| Abstract: | In the context of vertical contractual relationships, where competing sellers distribute their products directly as well as through competing intermediation platforms, we analyze the welfare effects of price parity clauses. These contractual clauses prevent a seller from offering its product at a lower price on other platforms or through its own direct sales channel. Recently, they have been the subject of several antitrust investigations. Contrary to the theories of harm developed by competition agencies and in some of the recent literature, we show that when we account for the sellers’ participation constraints, price parity clauses do not always lead to higher commissions and final prices. Instead, we find that they may simultaneously bene.t all the actors (platforms, sellers and consumers), even in the absence of traditional efficiency arguments. |
| Keywords: | Vertical contracts; price parity clauses; platforms; endogenous participation |
| JEL: | L13 L42 |
| Date: | 2017–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2017_001&r=com |
| By: | Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum |
| Abstract: | We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion -- due to inefficient labour allocation and firm entry between sectors and inefficient selection and output within sectors -- is equivalent to the contribution of 6- 8% of the total labour input. |
| Keywords: | monopolistic competition; welfare distortion; intersectoral distortions; intrasectoral distortions |
| JEL: | D43 D50 L13 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:69034&r=com |
| By: | Daniel Ferreira; Thomas Kittsteiner |
| Abstract: | Consider a firm that would like to commit to a focused business strategy because focus improves efficiency and thus increases profit. We identify two general conditions under which tougher competition strengthens the firm’s ability to commit to a focused strategy. Under these conditions, competition fosters commitment for two reasons: (i) competition reduces the value of the option to diversify (the contestability effect), and (ii) competition increases the importance of being efficient (the efficiency effect). We use a number of different models of imperfect competition to illustrate the applicability of our results. Our examples suggest that the contestability effect is very general. In contrast, the efficiency effect often requires further conditions, which are specific to the nature of competition in each model. In both cases, our analysis helps us predict when these effects are more likely to be observed. |
| Keywords: | competition; commitment; productivity |
| JEL: | L81 F3 G3 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:62746&r=com |
| By: | Caleb Stroup (Department of Economics, Davidson College); Matthew L. Gentry (Department of Economics, London School of Economics and Political Science) |
| Abstract: | We show that in many cases target shareholders would obtain higher prices if their company were sold via a negotiation, rather than via an auction. We show that fewer than half of invited potential bidders participate in takeover auctions. Endogenous participation is thus an important feature of takeover auction markets. Accounting for the endogenous determination of the size and composition of the bidder pool, we show that possible bidders in takeover auctions face substantial uncertainty prior to their entry into an auction, but that this uncertainty encourages participation in competitive bidding, thus making auctions preferable when uncertainty is high. In negotiations, uncertainty reduces the effectiveness of upward bid-shading to deter potential competitors, so negotiations are preferable when uncertainty is low. Cross-sectional averages thus mask dramatic variation in the best way to sell a company, but over 40 percent of this variation is accounted for by pre-entry uncertainty and the costs of overcoming it. Our results call into question claims that target directors necessarily violate their fiduciary duty by selling a company via a negotiated transaction, even in the absence of a formal market check. |
| Keywords: | Takeover Auctions, Mergers and Acquisitions |
| JEL: | D44 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:dav:wpaper:17-01&r=com |
| By: | Buettner, Thomas; Federico, Giulio; Lorincz, Szabolcs |
| Abstract: | In some recent merger cases the European Commission has relied on quantitative economic techniques in the competitive assessment of horizontal mergers. These techniques have ranged from the use of merger simulation models (for both differentiated and homogenous goods), to the deployment of direct estimation methods to study the effects of relevant events in the past. This article describes the appropriate use of these quantitative techniques, and it explains the rationale for the reliance on these methods. It also explains why the evidence from economic modelling is complementary to more traditional qualitative evidence on the expected impact of horizontal mergers. |
| Keywords: | European Commission, merger control, quantitative methods |
| JEL: | C21 C63 L13 L4 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76384&r=com |
| By: | Kenji Fujiwara (Kwansei Gakuin University); Keita Kamei (Yamagata University) |
| Abstract: | This paper examines welfare effects of competition policies in a gen- eral equilibrium model in which perfectly competitive and oligopolistic industries coexist and compete for a common factor of production. We first show that increasing the number of oligopolistic firms raises wel- fare if the oligopolists' production technology exhibits non-increasing returns to scale. Then, we address another competition policy mod- eled by an increase in the portion of perfectly competitive industries, finding that this policy improves welfare if decreasing returns of the oligopolists' technology are strong enough. These results suggest that the degree of returns to scale plays a key role for welfare-enhancing competition policy. |
| Keywords: | Competition policy, General oligopolistic equilibrium (GOLE), Welfare, Returns to scale. |
| JEL: | L4 L13 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:954&r=com |
| By: | Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros); Jorge Padilla (Compass Lexecon) |
| Abstract: | It has been commonly argued that the decision of a large number of inventors to license complementary patents necessary for the development of a product leads to excessively large royalties. This well-known Cournot-complements or royaltystacking effect would hurt efficiency and downstream competition. In this paper we show that when we consider patent litigation and introduce heterogeneity in the portfolio of different firms these results change substantially due to what we denote the Inverse Cournot e ect. We show that the lower the total royalty that a downstream producer pays, the lower the royalty that patent holders restricted by the threat of litigation of downstream producers will charge. This effect generates a moderation force in the royalty that unconstrained large patent holders will charge that may overturn some of the standard predictions in the literature. Interestingly, though, this effect can be less relevant when all patent portfolios are weak making royalty stacking more important. |
| Keywords: | Intellectual property, standard setting organizations, patent licensing, R&D investment, patent pools. |
| JEL: | L15 L24 O31 O34 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2016_1608&r=com |
| By: | Chen, Xuan; Liu, Yizao; Rabinowitz, Adam N. |
| Abstract: | This article focus on the question that whether private labels are competing along with their retailers’ characteristics and its impacts on retailers’ pricing strategies as well as bargaining power. We differentiate private labels with different retailers and estimate consumer demand and the supply of private labels using BLP (Berry, Levinsohn, and Pakes, 1995) model with monthly-county level data of fluid milk market data in Connecticut. We classify the retailers into regional retailers and national retailers and conduct counterfactual exercises showing retailers pricing strategies to private labels and national brands. Preliminary results indicate consumers like to substitute national retailers’ private labels with regional retailers’ private labels, reflecting the existence of competition. Moreover, with estimated supply model, national retailers have less wholesale prices while regional retailers have potential bargaining power to manufactures when they adjust their private label prices. |
| Keywords: | Private Label, Competition, Retail Pricing, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Industrial Organization, Marketing, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea17:252823&r=com |
| By: | Arcan Nalca, (Smith School of Business, Queen's University); Tamer Boyaci, (ESMT European School of Management and Technology); Saibal Ray (Desautels Faculty of Management, McGill University) |
| Abstract: | In this paper, we focus on the uncertainty in consumer taste and study how a retailer can benefit from acquiring that taste information in the presence of competition between the retailer's store brand and a manufacturer's national brand. In this context, we also identify the optimal information sharing strategy of the retailer with the manufacturer as well as the equilibrium product positioning and pricing of the two brands. We model a competitive setting in which there is ex-ante uncertainty about consumer preferences for different product features and the retailer has a distinct advantage in terms of resolving this uncertainty, given his close proximity to the consumers. We identify two important effects of retailer's information acquisition and sharing decisions about consumer taste. The direct effect is that having taste information allows the retailer to make better SB introduction and positioning decisions. The indirect effect is that information sharing enables the manufacturer to make better NB positioning decisions - which in return may benefit or hurt the retailer. Furthermore, we show that these effects interact with each other and the nature of their interaction depends on three external factors: relative popularity of different product features, the vertical differentiation between the two brands, and the cost of store brand introduction. This interaction is most striking when the store brand introduction is not very costly. In this case, if one of the features is quite popular, then the retailer voluntarily shares information with the manufacturer because the indirect effect augments the value of the direct effect - even though this increases the competition between the brands. Otherwise, the retailer refrains from information sharing because the indirect effect then diminishes the value of the direct effect. We also generate managerial insights as to when it is most valuable for the retailer to acquire taste information as well its worth for the manufacturer. |
| Keywords: | uncertain consumer taste, product introduction, store brands, national brands, information acquisition, information sharing, vertical differentiation, horizontal differentiation |
| Date: | 2017–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-17-01&r=com |
| By: | André de Palma; Carlos Ordás Criado; Laingo M. Randrianarisoa |
| Abstract: | This paper analyzes rivalry between transport facilities in a model that includes two sources of horizontal differentiation: geographical space and departure time. We explore how both sources influence facility fees and the price of the service offered by downstream carriers. Travellers’ costs include a fare, a transportation cost to the facility and a schedule delay cost, which captures the monetary cost of departing earlier or later than desired. One carrier operates at each facility and schedules a single departure time. The interactions in the facility-carrier model are represented as a sequential three-stage game in fees, times and fares with simultaneous choices at each stage. We find that duopolistic competition leads to an identical departure time across carriers when their operational cost does not vary with the time of day, but generally leads to distinct service times when this cost is time dependent. When a facility possesses a location advantage, it can set a higher fee and its downstream carrier can charge a higher fare. Departure time differentiation allows the facilities and their carrier to compete along an additional differentiation dimension that can reduce or strengthen the advantage in location. By incorporating the downstream carriers into the analysis, we also find that a higher per passenger commercial revenue at one facility induces a lower fee charged by both facilities to their carrier and a lower fare charged by both carriers at their departure facility, while a lower marginal operational cost for one carrier implies a higher fee at its departure facility, a lower fee at the other facility served by the rival carrier and a lower fare at both facilities. |
| Keywords: | Airline and facility competition, Horizontal differentiation, Location model, Spatial asymmetry, Service timing. |
| JEL: | D43 L13 L22 L93 R4 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:creacr:2017-01&r=com |
| By: | Ralph Sonenshine |
| Abstract: | In the late 1990s many US states deregulated their electric utilities, separating generation from transmission, allowing for competition among power generators. As a result there was a significant merger wave among large utility companies. To date the effect of utility deregulation and mergers on electricity prices, while widely studied, remains ambiguous. This study examines the effects of these events by analyzing statewide electricity price and output changes among deregulated and regulated states from the period 2001 through 2014. The study finds that deregulation appears to have a positive impact on social welfare by lowering prices and output by improving efficiencies in part through retail choice programs. However, mergers appear to have a slightly negative effect on social welfare by raising prices and possibly output in deregulated states. |
| Keywords: | Abnormal returns, event study, oil shocks |
| JEL: | G11 G12 G14 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:2016-08&r=com |
| By: | Faccio, Mara; Zingales, Luigi |
| Abstract: | We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn a year if U.S. mobile service prices were in line with German ones and $44bn if they were in line with Danish ones. |
| Keywords: | Antitrust; capture; political economy |
| JEL: | D72 L11 P16 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11794&r=com |
| By: | Gobillon, Laurent (Paris School of Economics); Milcent, Carine (Paris School of Economics) |
| Abstract: | We evaluate the effect of a pro-competition reform gradually introduced in France over the 2004-2008 period on hospital quality measured with the mortality of heart-attack patients. Our analysis distinguishes between hospitals depending on their status: public (university or non-teaching), non-profit or for-profit. These hospitals differ in their degree of managerial and financial autonomy as well as their reimbursement systems and incentives for competition before the reform, but they are all under a DRG-based payment system after the reform. For each hospital status, we assess the benefits of local competition in terms of decrease in mortality after the reform. We estimate a duration model for mortality stratified at the hospital level to take into account hospital unobserved heterogeneity and censorship in the duration of stays in a flexible way. Estimations are conducted using an exhaustive dataset at the patient level over the 1999-2011 period. We find that non-profit hospitals, which have managerial autonomy and no incentive for competition before the reform, enjoyed larger declines in mortality in places where there is greater competition than in less competitive markets. |
| Keywords: | competition, hospital ownership, policy evaluation, heart attack |
| JEL: | I11 I18 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10476&r=com |
| By: | Anthony Scott (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Peter Sivey (School of Economics, Finance and Marketing, RMIT University) |
| Abstract: | Non-pecuniary sources of motivation are a strong feature of the health care sector and the impact of competitive incentives may be lower where pecuniary motivation is low. We test this hypothesis by measuring the marginal utility of income of physicians from a stated-choice experiment, and examining whether this measure influences the response of physicians to changes in competition on prices charged. We find that physicians exploit a lack of competition with higher prices only if they have a high marginal utility of income. |
| Keywords: | FDoctors, incentives, competition, motivation |
| JEL: | I11 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2017n05&r=com |
| By: | Liangliang Jiang; Ross Levine; Chen Lin |
| Abstract: | Although policymakers often discuss tradeoffs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. In this paper, we employ a new approach for identifying exogenous changes in the competitive pressures facing individual banks and discover that an intensification of competition materially boosts bank risk. With respect to the mechanisms, we find that competition reduces bank profits, charter values, and relationship lending and increases banks’ provision of nontraditional banking services. |
| JEL: | G21 G28 G32 L1 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23080&r=com |