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on Industrial Competition |
| By: | Sergey Kokovin (National Research University Higher School of Economics); Mathieu Parenti (National Research University Higher School of Economics); Jacques-Francois Thisse (National Research University Higher School of Economics); Philip Ushchev (National Research University Higher School of Economics) |
| Abstract: | We show that a market involving a handful of large-scale firms and a myriad of small-scale firms may give rise to different types of market structure, ranging from monopoly or oligopoly to monopolistic competition through new types of market structure. In particular, we find conditions under which the free entry and exit of small firms incentivizes big firms to sell their varieties at the monopolistically competitive prices, behaving as if in monopolistic competition. We call this result the dilution of market power. The structure of preferences is the main driver for a specific market structure to emerge as an equilibrium outcome |
| Keywords: | dominant rms, monopolistically competitive fringe, monopolistic competition, oligopoly, contestability. |
| JEL: | D43 F12 L13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:176/ec/2017&r=com |
| By: | Jay Pil Choi; Christodoulos Stefanadis |
| Abstract: | We present a potentially benign naked exclusion mechanism that can be applied to sequential innovation; a non-patentable original innovation by the incumbent supplier fosters derivative innovation by rivals. In the absence of an appropriate legal framework, the original innovator’s equilibrium exclusivity contracts block subsequent efficient entry even if there is (leader-follower) competition in the contracting phase. However, the legal framework may maximize social welfare by imposing a ban on upfront lumps-sum payments in exclusivity contracts (by all suppliers) combined with an outright ban on exclusivity contracts by the derivative innovator. The former ban precludes the exclusion of socially beneficial derivative innovation by causing the incumbent supplier to resort to accommodation, rather than to pure exclusion, strategies. The latter ban complements the former by preventing inefficient or excessive derivative innovation. |
| Keywords: | exclusivity, entry, fixed cost, lump-sum payment, sequential innovation |
| JEL: | L42 D43 D45 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6412&r=com |
| By: | Daniel Goetz (Rotman School of Management, 105 St. George St., Toronto, ON, Canada M5S 3E6) |
| Abstract: | This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32 percent within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in the suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms’ strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans. |
| Keywords: | broadband access; market structure; quality disclosure |
| JEL: | L96 L11 L15 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1703&r=com |
| By: | Gokhan Guven; Eren Inci; Antonio Russo |
| Abstract: | We study a platform’s design of membership and transaction fees when sellers compete and buyers cannot observe the prices and features of goods without incurring search costs. The platform alleviates sellers’ competition by charging them transaction fees that increase with sales revenue, and extracts surplus via membership fees. It prices consumers’ membership below its cost to encourage their search. Examples include malls and online marketplaces. Most malls do not charge for parking while most lease contracts include percentage rents as well as fixed rents. Online marketplaces charge sellers for membership and per transaction while letting consumers access website for free. |
| Keywords: | consumer search, membership fees, retail agglomeration, transaction fees, two-sided platforms |
| JEL: | D21 D40 D83 L13 R33 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6660&r=com |
| By: | Mitra, Manipushpak; Pal, Rupayan; Paul, Arindam; Sharada, P.M. |
| Abstract: | We consider a differentiated product duopoly where a regulated firm competes with a private firm. The instrument of regulation is the level of privatization. First, the regulator determines the level of privatization to maximize social welfare. Then both firms endogenously choose the mode of competition (that is, whether to compete in price or quantity). Finally, the two firms compete in the market. Under a very general demand specification, we show that when the products are imperfect substitutes (complements), there is co-existence of private and public (strictly partially privatized) firms. Moreover, in the second stage, the firms compete in prices. |
| Keywords: | Partially private firm, price (Bertrand) competition, quantity (Cournot) competition |
| JEL: | D4 L1 L2 |
| Date: | 2017–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81802&r=com |
| By: | L. Lambertini; G. Leitmann |
| Abstract: | We reformulate the Verhulst-Lotka-Volterra model of natural resource extraction under the alternative assumptions of Cournot behaviour and perfect competition, to revisit the tragedy of commons vs the possibility of sustainable harvesting. We stress the different impact of demand elasticity on the regulator’s possibility of driving industry harvest to the maximum sustainable yield in the two settings. The presence of a flat demand function offers the authority a fully effective regulatory tool in the form of the exogeneous price faced by perfectly competitive firms, to drive their collective harvest rate at the maximum sustainable yield. The same cannot happen under Cournot competition, as in this case the price is endogenous and the regulator’s policy is confined to limiting access to the common pool. |
| JEL: | C73 L13 Q20 Q28 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1112&r=com |
| By: | Gillet, Joris |
| Abstract: | This paper tests the hypothesis that a (partial) reason why cartels – costly non-binding price agreements – lead to higher prices in Bertrand Pricing Game-experiments could be because participants who form these kinds of agreements are more cooperative and pick higher numbers in general. To test this hypothesis we run an experiment where participants play two consecutive Bertrand oligopoly games: first a standard version without the opportunity to make price agreements; followed by a version where participants can vote, by majority, on whether to have a costly nonbinding agreement to pick the highest number. We find no statistically significant difference between the numbers picked in the first game by participants who vote for and against an agreement in the second game. We do confirm that having a price agreement leads to higher numbers being picked on average. Additionally we find that participants who vote for or against the price-agreement behave differently in response to the existence of the price agreement. In particular, participants who vote for a price agreement react more positively to the price agreement. The difference in numbers picked in the second game between situations with and without a price agreement is larger for participants who voted in favour of the agreement. Voters who voted for the price agreement are more cooperative than voters who voted against but only in situations where there is a price agreement. |
| Keywords: | Bertrand Pricing Game, oligopoly, experimental economics |
| JEL: | C91 D02 D43 L13 |
| Date: | 2017–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82160&r=com |
| By: | Odenkirchen, Johannes |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168309&r=com |
| By: | Tebbe, Eva; von Blanckenburg, Korbinian |
| JEL: | C9 D03 D43 L1 L4 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168304&r=com |
| By: | Serbera, Jean-Philippe; Fry, John |
| Abstract: | We analyse takeovers in an industry with bilateral capital-linked firms in Cross Partial Ownerships (CPO). We find conditions for stable equilibria in takeovers with the target being inside or outside of a CPO arrangement. The impact of CPO upon profitability for the raider, the target and the rest of the industry is two-sided in a Cournot setting and depends on the value of CPO and on the type of target. CPO shows anticompetitive effects by facilitating mergers in most cases. However, a protective threshold (takeover ratio |
| Keywords: | Takeovers; Partial Ownership; Mergers; Market Power; Minimum Takeover Ratio |
| JEL: | G34 L22 L41 |
| Date: | 2017–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82074&r=com |
| By: | Dasgupta, Kalyan; Williams, Mark |
| Abstract: | Network sharing arrangements are common between mobile operators in Europe. There is also increasing interest in “co-investment” between fixed networks. Such arrangements have generally been cleared by anti-trust authorities. However, with the industry continually evolving and new types of sharing arrangements being proposed, it is important to review the competition implications of such deals. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse17:169456&r=com |
| By: | Zhan Qu; Horst Raff; Nicolas Schmitt |
| Abstract: | The paper shows that taking inventory control out of the hands of competitive or exclusive retailers and assigning it to a manufacturer increases the value of a supply chain especially for goods whose demand is highly volatile. This is because doing so solves incentive distortions that arise when retailers have to allocate inventory across sales periods, and thus allows for better intertemporal price discrimination. Assigning inventory control to a manufacturer is also shown to have effects on total inventory and social welfare. |
| Keywords: | inventory, supply chain, demand uncertainty, storable good, price discrimination |
| JEL: | L11 L12 L22 L81 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6705&r=com |
| By: | Götz, Georg; Ederington, Josh |
| Abstract: | We develop a model in which ex ante identical firms make endogenous entry and technology adoption decisions. We show that this model is capable of matching the stylized facts in which entry is dispersed over time and that, in many industries, it is the newest firms which are the most likely to exhibit high productivity growth and adopt new innovations (i.e., leapfrogging). We then derive the characteristics of those industries where such leapfrogging is likely to occur. |
| JEL: | L11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168126&r=com |
| By: | L. Lambertini; A. Palestini |
| Abstract: | We revisit the adoption of voluntary export restraints (VERS) in the differential Cournot game with sticky price and intraindustry trade by Dockner and Haug (1991). The analysis relies on linear and nonlinear feedback strategies, to encompass the special cases considered in Fujiwara (2010) and to show that a VER may arise in correspondence of any free trade equilibrium generated by feedback information such that competition is at least as strong as under open-loop rules. This result can be interpreted in the light of the dynamic formulation of conjectural variations due to Dockner (1992). |
| JEL: | C73 D43 F12 L13 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1109&r=com |
| By: | Christos Genakos; Tommaso M. Valletti; Frank Verboven |
| Abstract: | We study the dual relationship between market structure and prices and between market structure and investment in mobile telecommunications. Using a uniquely constructed panel of mobile operators’ prices and accounting information across 33 OECD countries between 2002 and 2014, we document that more concentrated markets lead to higher end user prices. Furthermore, they also lead to higher investment per mobile operator, though the impact on total investment is not conclusive. Our findings are not only relevant for the current consolidation wave in the telecommunications industry. More generally, they stress that competition and regulatory authorities should take seriously the potential trade-off between market power effects and efficiency gains stemming from agreements between firms. |
| Keywords: | mobile telecommunications, market structure, prices, investments, mergers |
| JEL: | K20 L10 L40 L96 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6509&r=com |
| By: | Tomaso Duso; Florian Szücs; Veit Böckers |
| Abstract: | In 2008, the European Commission investigated E.ON, a large and vertically integrated electricity company, for the alleged abuse of a joint dominant position by strategically withholding generation capacity. The case was settled after E.ON agreed to divest 5,000 MW generation capacity as well as its extra-high voltage network. We analyze the effect of these divestitures on German wholesale electricity prices. Our identification strategy is based on the observation that energy suppliers have more market power during peak periods when demand is high. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices. Using daily electricity prices for the 2006 - 2012 period and controlling for cost and demand drivers, we find economically and statistically significant convergence effects after the implementation of the Commission’s decision. Furthermore, the price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations. Placebo regressions support a causal interpretation of our results. |
| Keywords: | electricity, wholesale prices, EU Commission, abuse of dominance, ex post evaluation, E.ON |
| JEL: | K21 L41 L94 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6681&r=com |
| By: | Eyal Dvir; Georg Strasser |
| Abstract: | We study cross-country price differences in the European market for new passenger cars based on detailed pricing and technical data. Car prices in Europe converged until the year 2003, but not thereafter. Within the EU 15 countries the price range of the median model in 2004 was close to 20 percent. We document a source of international price differentiation, which is not related to distribution and border costs, but instead systematically linked to product features. Price dispersion increases with the market segment and varies significantly across models. Marketing appears to position identical goods differently in each country, for example by feature bundles tailored to local consumer preferences. Both the convergence before the actual reduction of barriers to arbitrage and the systematic international price differentiation by product feature point to active pricing-to-market strategies that treat countries as marketing regions. |
| Keywords: | arbitrage, European car market, international price dispersion, law of one price, market segmentation |
| JEL: | F15 F31 L11 L62 D22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6639&r=com |
| By: | Andrea Mantovani (Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy.); Claudio Piga (Keele Management School, Keele University, Staffordshire ST5 5BG, United Kingdom.); Carlo Reggiani (Department of Economics, School of Social Sciences, University of Manchester, Manchester M13 9PL, United Kingdom.) |
| Abstract: | This paper analyses the dynamics of hotel prices listed on Booking.com in the period 2014-16. This period is characterised by the most important antitrust decisions regarding the use of price parity clauses by online travel agencies (OTAs) in the EU. First, we document the dynamics of hotel prices on Booking.com in tourism regions of three EU member states: France, Italy, and Spain. The evidence suggests that prices decreased in 2015, the year in which the major antitrust decisions took place, whereas they bounced back in 2016. Second, we provide both a comprehensive explanation of the previous evidence and a rationalisation based on a theoretical model of the OTA sector. Overall, our overarching analysis of the price dynamics on Booking.com allows to explain both the impact of removing price parities and the possible response of the OTAs. |
| Keywords: | Price parity clauses; hotel booking; online travel agencies; Booking.com |
| JEL: | D40 L42 L81 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1704&r=com |
| By: | Levi Marks; Charles F. Mason; Kristina Mohlin; Matthew Zaragoza-Watkins |
| Abstract: | New England is at the leading edge of an energy transition in which natural gas is playing an increasingly important role in the US electricity generation mix. In recent years, the region’s wholesale natural gas and electricity markets have experienced severe, simultaneous price spikes. While frequently attributed to limited pipeline capacity serving the region, we demonstrate that such price spikes have been exacerbated by some gas distribution firms scheduling deliveries without actually owing gas. This behavior blocks other firms from utilizing pipeline capacity, which artificially limits gas supply to the region and drives up gas and electricity prices. The firms observed to withhold pipeline capacity also own non-gas electricity generation assets in New England that benefit from their gas-fired competitors paying higher fuel input costs. We estimate that capacity withholding increased average gas and electricity prices by 38% and 20%, respectively, over the three-year period we study. As a result, customers paid $3.6 billion more for electricity. While the studied behavior may have been within the firms’ contractual rights, the significant impacts in both the gas and electricity markets show the need to consider improvements to market design and regulation as these two energy markets become increasingly interlinked. |
| Keywords: | vertical relations, pipelines, electricity markets |
| JEL: | D04 D40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6687&r=com |
| By: | Kapatamoyo, Musonda |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse17:169471&r=com |
| By: | Beyer, Christian; Tebbe, Eva; von Blanckenburg, Korbinian; Kottmann, Elke |
| JEL: | B4 L1 L4 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168306&r=com |