|
on Industrial Competition |
| By: | Christian Trudeau (Department of Economics, University of Windsor); Zheng Wang (Capital University of Business and Economics) |
| Abstract: | Recently, cooperative game theory and the stand-alone core have been introduced to value capture theory to establish lower and upper bounds on the profits of firms. Where within these bounds firms end up depends on many unobservable factors, including individual bargaining abilities and market-specific practices. Gans and Ryall (2017), in their survey of the recent papers using this theory, provide an example of a matching market in which the firm with the cost advantage might actually be worse off when it decides to expand its capacity to take over the full market. We show that this paradox is extremely persistent and can resist to most extensions of the model, including the presence of additional buyers that were not served originally and economies of scale for the expanding firm. By expanding, the firm now has to attract more consumers, which considerably limits its bargaining power. |
| Keywords: | Value capture; expansion; bargaining power; core |
| JEL: | C71 C78 L13 L25 M11 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:wis:wpaper:1706&r=com |
| By: | Anderson, Simon P; Peitz, Martin |
| Abstract: | We customize the aggregative game approach to oligopoly to study media platforms which may differ by popularity. Advertiser, platform, and consumer surplus are tied together by a simple summary statistic. When media are ad-financed and ads are a nuisance to consumers we establish see-saws between consumers and advertisers. Entry increases consumer surplus, but decreases advertiser surplus if industry platform profits decrease with entry. Merger decreases consumer surplus, but advertiser surplus tends to increase. By contrast, when platforms use two-sided pricing or consumers like advertising, advertiser and consumer interests are often aligned. |
| Keywords: | advertising; Aggregative games; Entry; Media economics; mergers |
| JEL: | D43 L13 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12214&r=com |
| By: | Moita, Rodrigo Menon Simões; Monte, Daniel |
| Abstract: | Hydroelectric generation is the main source of energy production in many countries. When firms operate in the same river, or in cascades, the output of an upstream firm is the input of its downstream rival. We build a dynamic stochastic duopoly model of competition in cascades and show that the decentralized market is efficient at the critical times when rain is infrequent, but inefficient when rain is more frequent. Market power is an issue when peak prices are sufficiently higher than off-peak prices: Upstream firms delay production in off-peak times, limiting their rival downstream generators' production in peak times. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:456&r=com |
| By: | Benjamin Davies; Richard Watt (University of Canterbury) |
| Abstract: | Risky prospects can often by disaggregated into several identifiable, smaller risks. In such cases, at least two modes of insurance are available: either (i) the disaggregated risks can be insured independently or (ii) the aggregate risk can be insured as one. We identify (ii) as risk bundling prior to insurance and (i) as separate, or unbundled, insurance. We investigate whether (i) or (ii) is preferable among consumers, insurers and the insurance market as a whole using numerical simulations. Our simulations reveal that separate contracts provide the socially optimal form of insurance when the insurer is able to charge the profit-maximising premia and has perfect information. Under asymmetric information with respect to consumers’ risk aversion, we find that separation is again the dominant method of insurance in terms of the market share it represents. |
| Keywords: | Optimal insurance, risk bundling, simulation |
| JEL: | D8 |
| Date: | 2017–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:17/05&r=com |
| By: | Neha Bairoliya; Pinar Karaca-Mandic; Jeffrey S. McCullough; Amil Petrin |
| Abstract: | Generic pharmaceuticals provide low-cost access to treatment. Despite their chemical equivalence to branded products, many mechanisms may hinder generic substitution. Consumers may be unaware of their equivalence. Firms may influence consumers through advertising or product line extensions. We estimate a structural model of pharmaceutical demand where consumers learn about stochastic match qualities with specific drugs. Naïve models, without consumer heterogeneity and learning, grossly underestimate demand elasticities. Consumer bias against generics critically depends on experience. Advertising and line extensions yield modest increases in branded market shares. These effects are dominated by consumers’ initial perception bias against generics. |
| JEL: | I1 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23662&r=com |
| By: | Koster, Hans R.A.; Pasidis, Ilias; van Ommeren, Jos |
| Abstract: | Why do shops cluster in shopping streets? According to theory, retail firms benefit from shopping externalities. We identify these externalities for the main shopping streets in the Netherlands by estimating the effect of footfall - the number of pedestrians that pass by - on store owner's rental income, which is a composite of the effects of footfall on shop rent and on vacancy rates. We address endogeneity issues by exploiting spatial variation between intersecting streets. Our estimates imply an elasticity of rental income with respect to footfall of 0.25. We find that a shop's marginal benefit of a passing pedestrian is € 0.005. It follows that subsidies to retail firms that increase with the levels of footfall generated by these shops are welfare improving. The optimal subsidy to store owners is, on average, 10 percent of the rent, but is higher for retail firms that generate high levels of footfall. Although explicit subsidies are controversial and difficult to implement, our results seem to justify current policy practices which cluster shops by pedestrianisation of shopping streets or by providing subsidised parking for shoppers. |
| Keywords: | agglomeration economies; footfall.; rents; retail; shopping externalities; Vacancies |
| JEL: | R30 R33 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12216&r=com |
| By: | Anton Bondarev; Frank C. Krysiak (University of Basel) |
| Abstract: | We consider an abstract setting of the di fferential r&d game, where participating firms are allowed for strategic behavior. We assume the information asymmetry across those fi rms and the government, which seeks to support newer technologies in a socially optimal manner. We develop a general theory of robust subsidies under such one-sided uncertainty and establish results on relative optimality, duration and size of di fferent policy tools available to the government. It turns out that there might exist multiple sets of second-best robust policies, but there always exist a naturally induced ordering across such sets, implying the optimal choice of a policy exists for the government under different uncertainty levels. |
| Keywords: | technology lock-in, technological change, strategic interaction, uncertainty, robust policy sets, uncertainty thresholds, robust welfare improving policy |
| JEL: | C61 O31 O38 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2017/14&r=com |
| By: | Gorecki, Paul |
| Abstract: | The paper argues that the sentences imposed on 31 May 2107 by the Central Criminal Court in the commercial flooring bid-rigging cartel case and the methodology used in setting those sentences seriously undermines the effective enforcement of competition law in Ireland. The sentence imposed on the individual responsible for initiating and participating for 2 years and 4 months in the bid-rigging cartel was only three weeks wages or €7,500. No gaol sentence was imposed. The undertaking was fined €10,000; the value of the rigged tenders it won totalled €556,000. The Court’s reasoning did not justify the low sanctions. Current sentencing norms indicate a custodial sentence and much higher fines for both the individual and the undertaking. This is consistent with the application of EU and US Sentencing Guidelines to the facts of the commercial flooring bid-rigging cartel case. If the sentences imposed by the Central Criminal Court are not successfully appealed as being unduly lenient and appropriate sentencing guidelines developed, then the prospect for competition law enforcement in Ireland is grim. In particular, the effectiveness of the Cartel Immunity Programme, a vital tool for cartel detection and prosecution, will be severely damaged. |
| Keywords: | Bid-rigging cartel; commercial flooring; Competition Act 2002; unduly lenient; sentencing competition law; cartels. |
| JEL: | D43 K21 K41 K42 L41 |
| Date: | 2017–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80787&r=com |