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on Industrial Competition |
| By: | Perloff, Jeffrey M. |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2020–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:qt2zv493q7&r=all |
| By: | Sumit Shrivastav (Indira Gandhi Institute of Development Research) |
| Abstract: | This paper analyses implications of network compatibility and competition on process innovation in differentiated network goods duopoly. It shows that firms R&D investments are strategic substitutes (complements), if effective network compatibility is less (more) than product substitutability, regardless of the nature of competition. If R&D investments are strategic complements, firms always invest in process innovation and they invest more under Bertrand competition than under Cournot competition. If R&D investments are strategic substitutes, unlike Cournot firms, Bertrand firms dont always undertake process innovation; but, when Bertrand firms also undertake process innovation, Cournot-Bertrand R&D ranking depends on the strength of network externalities. |
| Keywords: | Network compatibility, Network Externalities, Process R&D, Bertrand-Cournot Compari- son, Product Differentiation |
| JEL: | L13 D43 O31 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2020-007&r=all |
| By: | Chongwoo Choe; Noriaki Matsushima; Mark J. Tremblay |
| Abstract: | We study a model of behavior-based price discrimination where firms can agree to share customer information that can be used for personalized pricing. We show that firms are better off sharing customer information as it softens up-front competition when they gather information, consumers are worse off as a result, but total surplus can increase thanks to the improved quality of matching between firms and consumers. |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1083&r=all |
| By: | KAWAHAMA Noboru; TAKEDA Kuninobu |
| Abstract: | Mega platform operators are active in the advertising market. They make use of that profit to provide new services to consumers. In that respect, online advertising is at the core of the Internet ecosystem. Today many competition authorities are carrying out sector inquiries on this topic. There is one common concern they share is lack of transparency in the online advertising market, especially in the programmatic display advertising market. This paper classifies ad tech markets in order to analyze the advertising industry from the perspective of competition policy and sorts essential issues from the practices and discussions in foreign countries. Significant results of this study are as follows. First, competitive advantage in the advertising market is determined by ad tech, data, and advertisement inventory. Google seems to control all of these. Second, the publisher-side ad servers are considered a bottleneck for competition among ad exchanges. Third, sequential auctions carried out by Google create arbitrage opportunities for Google. These insights have implications for public policy and enforcement of competition law in Japan. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:20013&r=all |
| By: | Yue Feng (School of Business, Nanjing University, China and Center for Post-Doctoral Studies, Bank of Nanjing, China); Tarun Sabarwal (Department of Economics, University of Kansas) |
| Abstract: | Strategic complements are well understood for normal form games, but less so for extensive form games. There is some evidence that extensive form games with strategic complementarities are a very restrictive class of games (Echenique (2004)). We study necessary and sufficient conditions for strategic complements (defined as increasing best responses) in two stage, 2x2 games. We find that the restrictiveness imposed by quasisupermodularity and single crossing property is particularly severe, in the sense that the set of games in which payoffs satisfy these conditions has measure zero. Payoffs with these conditions require the player to be indifferent between their actions in two of the four subgames in stage two, eliminating any strategic role for their actions in these two subgames. In contrast, the set of games that exhibit strategic complements (increasing best responses) has infinite measure. This enlarges the scope of strategic complements in two stage, 2x2 games (and provides a basis for possibly greater scope in more general games). The set of subgame perfect Nash equilibria in the larger class of games continues to remain a nonempty, complete lattice. The results are easy to apply, and are robust to including dual payoff conditions and adding a third player. Examples with several motivations are included. |
| Keywords: | Strategic complements, extensive form game, two stage game |
| JEL: | C60 C70 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:202006&r=all |
| By: | Ramesh Jangili (Indira Gandhi Institute of Development Research) |
| Abstract: | The legal systems in emerging economies are weak and hence unsuccessful in completely eliminating market abuse, which could benefit some segment of firms to earn higher profits. This further leads to market imperfections and eventually to higher concentration. The problem persists even after strengthening market discipline and improving overall competition in emerging markets. Large and group firms in these markets could gain differential advantage and destroy value. We analyse the profitability of firms in an emerging economy, India; and find that large and group firms are more profitable than small and standalone firms. Further, we explicitly use cost efficiency of firms to understand the impact of market power on profitability and find that large firms in concentrated industries generate more profits. We also find that higher profitability of large firms is due to market power. |
| Keywords: | Profitability, Size, Group affiliation, Cost efficiency, Market power |
| JEL: | L22 L25 D22 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2020-003&r=all |
| By: | Fotis, Panagiotis; Tselekounis, Markos |
| Abstract: | EC’s Notice on the conduct of settlement procedures mentions that if the EC decides to reward a firm for settlement in the framework of its Notice, a reduction of 10% on cartel fine will be granted to that firm. In this paper, we compare the cartel profits with the ones derived when the cartel members decide to settle with competition authority so as to find the optimal reduction on cartel fines that fulfills EC’s Notice goal of inducing all cartel firms to participate in the settlement procedure. We find that such reduction is negatively correlated with the likelihood that the cartel would be detected, meaning that a higher probability of cartel detection is required for a lower reduction to be effective. |
| Keywords: | Antitrust policy; Competition policy; Cartel fines; Settlement Procedure |
| JEL: | K21 L13 L41 |
| Date: | 2020–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99154&r=all |
| By: | Kenji Fujiwara (School of Economics, Kwansei Gakuin University) |
| Abstract: | This paper examines the effects of a tax reform when final goods are produced in an oligopoly and intermediate goods are produced in monopolistic competition. In particular, we address the effect of a shift from upstream to downstream taxation that leaves government revenue unchanged. This tax reform raises the consumer and producer prices of final goods, lowers the demand price of intermediate goods, and has no effect on the producer price of intermediate goods. Finally, we find that welfare improves with this tax reform. |
| Keywords: | Final Goods, Intermediate Goods, Oligopoly, Monopolistic Competition, Tax Incidence, Welfare |
| JEL: | D43 H21 H22 L13 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:207&r=all |
| By: | Kishi, Akio; Kono, Tatsuhito |
| Abstract: | Concentration or dispersion of retail stores is the result of market interactions. If it involves market failures, then the spatial location equilibrium of retail stores is not optimal in terms of social welfare. We investigate two important market failures involving retail store location: “monopolistic competition among retail stores” and “shopping externality caused by multipurpose shopping”. Retail store locations in market equilibrium and those in a social optimum are derived. Next, we show that the degree of hollowing-out of urban centers is not always excessive from the perspective of the social optimum. It is believed that hollowing-out of urban commercial centers harms social welfare. But on the contrary, if the accessibility of suburban areas from residential areas is lower than that of the urban center, we confirm that hollowing-out of urban commercial centers is desirable. In this case, promotion of retail stores’ location in urban center, such as subsidies to locate in the city center or restrictions on location in suburbs, decreases social welfare. Instead, promotion of stores’ location in the suburbs is preferred. |
| Keywords: | monopolistic competition, hollowing-out, suburbanization, shopping externality |
| JEL: | L11 L13 R12 R32 |
| Date: | 2020–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99247&r=all |
| By: | Moritz Bohland; Sebastian Schwenen |
| Abstract: | We show how policies to trigger clean technologies change price competition and market structure. We present evidence from electricity markets, where regulators have implemented different policies to subsidize clean energy. Building on a multi-unit auction model, we show that currently applied subsidy designs either foster or attenuate competition. Fixed, price-independent output subsidies decrease firms’ mark-ups. In contrast, designs that subsidize clean output via a regulatory premium on the market price lead to higher mark-ups. We confirm this finding empirically using auction data from the Spanish power market. Our empirical results show that the design choice for technology subsidies significantly impacts pricing behavior of firms and policy costs for consumers |
| Keywords: | Subsidies, Clean Energy, Pricing, Electricity |
| JEL: | D22 D44 D47 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1856&r=all |
| By: | Cherla, Avi; Howard, Natasha; Mossialos, Elias |
| Abstract: | At present, pay for prescription models are insufficient at containing costs and improving access to medicines. Subscription financing through tenders, licensing fees and unrestricted or fixed volumes can benefit stakeholders across the supply chain. Pharmaceutical manufacturers can reduce the need for marketing expenses and gain certainty in revenue. This will decrease costs, improve predictability in budget expenditure for payers and remove price as a barrier of access from patients. Inherently, low- and middle-income countries lack the purchasing power to leverage price discounts through typical price arrangements. These markets can realise substantial savings for branded and generic medicines through subscription financing. Procuring of on-patent and off-patent drugs requires separate analysis for competition effects, the length of contract and encouraging innovation in the medicine pipeline. Prices of competitive on-patent medicines and orphan drugs can be reduced through increased competition and volume. Furthermore, pooling expertise and resources through joint procurement has the potential for greater savings. Incentivising research and development within the pharmaceutical industry is essential for sustaining a competitive market, preventing monopolies and improving access to expensive treatments. However, technical capacity, forecasting demand and the quality of generic medicines present limitations which necessitate government support and international partnerships. Ultimately, improving access requires progressive financing mechanisms with patients and cost containment in mind. |
| Keywords: | Financing; health policy; low- and middle-income countries; pharmaceuticals |
| JEL: | N0 F3 G3 |
| Date: | 2020–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103904&r=all |
| By: | Iwata, Hiroki |
| Abstract: | This paper analyzes the effects of environmental policy on green innovation. We compare the incentives for green innovation in both the Cournot and Bertrand competition. It is shown that positive incentives for green innovation exist in both competition models. When environmental regulations are imposed, the effects of the probability of success on green innovation incentives differ between the Bertrand and Cournot competition. Additionally, we clarify the conditions necessary for the establishment of the Porter hypothesis in both competition models. |
| Keywords: | Cournot and Bertrand competition, Green innovation, Porter hypothesis |
| JEL: | L13 Q52 Q55 |
| Date: | 2020–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99305&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Rexon T. Nting (University of Wales, London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | Purpose- In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient. Design/methodology/approach- We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity. Findings- The empirical evidence does not support the QLH because market power is positively associated with cost efficiency. Originality/value- Owing to data availability constraints, this is one of the few studies to test the QLH in African banking. |
| Keywords: | Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:19/080&r=all |
| By: | Bryson, Alex (University College London); Dale-Olsen, Harald (Institute for Social Research, Oslo) |
| Abstract: | We present theoretical and empirical evidence challenging results from early studies that found unions were detrimental to workplace innovation. Under our theoretical model, which extends the Cournot duopoly innovation model, local union wage bargaining is more conducive to innovation - particularly product innovation - than competitive pay setting. We test the theory with workplace data for Britain and Norway. Results are consistent with the theory: local union bargaining is positively associated with product innovations in both countries. In Norway, local union bargaining is also positively associated with process innovation. |
| Keywords: | product innovation, process innovation, trade unions, collective bargaining |
| JEL: | J28 J51 J81 L23 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13015&r=all |
| By: | Karlson, Nils (The Ratio Institute); Sandström, Christian (The Ratio Institute); Wennberg, Karl (The Ratio Institute) |
| Abstract: | This paper takes stock of recent suggestions that the state apparatus is a central and underappreciated actor in the generation, diffusion and exploitation of innovations enhancing growth and social welfare. We contrast such a view of “the entrepreneurial state” with theories and empirical evidence of the microeconomic processes of innovation in the modern economy which focus on well-functioning markets, free entry and competition among firms, and independent entrepreneurship as central mechanisms in the creation and dissemination of innovations. In doing so, we identify several deficiencies in the notion of an entrepreneurial state by showing that (i) there is weak empirical support in the many hundreds empirical studies and related meta analyses evaluating the effectiveness of active industrial and innovative policies, that (ii) these policies do not take account of the presence of information and incentive problems which together explain why attempts to address purported market failures often result in policy failures, and that (iii) the exclusive focus on knowledge creation through R&D and different forms of firm subsidies ignores the equally important mechanisms of knowledge dissemination and creation through commercial exploitation in markets. We discuss how a more theoretically well-founded focus on the state as investing in knowledge generation and securing the conditions of free and competitive markets will lead to a more innovative economy. |
| Keywords: | innovation policy; market failure; entrepreneurial state; incentive problem; rent seeking |
| JEL: | M13 O31 O38 O40 P16 |
| Date: | 2020–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0331&r=all |
| By: | NISHIKAWA Kohei; OHASHI Hiroshi |
| Abstract: | The purpose of this paper is to quantitatively evaluate the impact of market expansion re-pricing, a government regulation on pharmaceuticals that recorded bigger sales than expected, and when targeted, prices are reduced by up to 25%. The government has wanted to use this system to control pharmaceutical costs, but pharmaceutical companies have worried about the reduction in revenues. The analysis is conducted for the antihypertensive pharmaceutical market that includes ARTIST and MAINTATE, which were targeted in April 2012, and the following points are clarified. First, using hedonic analysis, we estimate the additional price reductions that result from market expansion re-pricing. The result is that ARTIST is 5.5 yen lower than the price determined based on market transactions, and MAINTATE is 2.5 yen lower. Second, demand function is estimated based on a discrete choice model. The price elasticity of demand calculated based on the estimated parameters is 14.4 for ARTIST and 18.8 for MAINTATE. This result shows that consumers in the antihypertensive market are very sensitive to price changes. Finally, a simulation is conducted to determine the market structure in a counterfactual situation where there is no market expansion re-pricing. As a result of a significant reduction in pharmaceutical prices, ARTIST and MAINTATE increase their market share by 30% and sales by 15%, and so the overall effect on pharmaceutical cost control in the antihypertensive market is only 0.18%. Furthermore, we conduct the simulation adapting another scenario where only non-generic pharmaceuticals are subject to market expansion re-pricing. The result shows that it is possible to achieve greater pharmaceutical price controls than those actual stipulated in the regulations. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:20005&r=all |
| By: | Ryo Kato; Tatsushi Okuda; Takayuki Tsuruga |
| Abstract: | Previous studies have stressed that inflation dynamics exhibit a substantial dispersion across sectors. Using US producer price data, we present evidence that sectoral inflation persistence is negatively correlated with market concentration, which is difficult to reconcile with the prediction of the standard model of monopolistic competition. To explain the data, we incorporate imperfect common knowledge into the monopolistic competition model introduced by Melitz and Ottaviano (2008). In the model, strategic complementarity among firms increases as market concentration decreases. Because higher strategic complementarity generates greater inflation persistence, our model successfully replicates the observed negative correlation between inflation persistence and market concentration across sectors. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1082&r=all |
| By: | Padmashree Gehl Sampath; Walter Park |
| Abstract: | Market concentration in technology intensive industries has been a subject of interest to both scholars and policy analysts. This paper provides a first empirical assessment on how the patenting system contributes to market concentration and the generation of economic rents in three key sectors – pharmaceuticals, chemicals and ICTs. Using data for US multinationals and their foreign affiliates on the one hand, and locally registered private and public companies in Brazil, India and China, we conclude that the concentration of patent ownership is found significantly to relate to market concentration in the USA. In developing countries such as Brazil, India, and China, a strengthening of patent rights has contributed to greater returns for affiliates of U.S. companies but has not stimulated their R&D intensity. The affiliates of U.S. multinationals have enjoyed greater profitability relative to their local competitors in Brazil, India, and China. The paper draws implications for the setting of intellectual property policy and offers suggestions on the role of competition policy in curbing market concentration and related effects on inequality and access. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:dae:daepap:19-02&r=all |
| By: | Paul Klemperer (Nuffield College, University of Oxford) |
| Abstract: | The “Product-Mix Auction” is a single-round auction that can be used whenever an auctioneer wants to sell (or buy) multiple differentiated goods. It allows all participants to express their preferences between varieties, as well as for alternative quantities of specific varieties. Bidders simultaneously make sets of bids. Each of a bidder’s bids can be an "OR” bid that offers a different price for each different variety, and the auction then accepts at most one of the offers from each bid (whichever is best for the bidder given the prices that the auction sets). The graphical solution method makes the operation and merits of the auction easy to explain. The auction is more efficient, and less sensitive to market power, than either running a separate auction for each different variety or running a combined auction with predetermined price differences between varieties. It is also faster, less vulnerable to collusion, and can be easier to use and understand than a simultaneous multiple round auction (SMRA). Moreover, unlike in an SMRA, the auctioneer can specify how the quantities to be sold will depend on the auction prices, by choosing supply functions across varieties. Related material is at www.paulklemperer.org. |
| Date: | 2018–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:1807&r=all |
| By: | Laurent Piet (SMART - Structures et Marché Agricoles, Ressources et Territoires - AGROCAMPUS OUEST - INRA - Institut National de la Recherche Agronomique) |
| Abstract: | Cet article étudie l'évolution de la relation entre la dimension économique des exploitations et la main-d'œuvre utilisée sur la période 2000-2015. Pour ce faire, trois catégories d'exploitations sont définies, de façon relative, en fonction de leur potentiel de production mesuré en euros de production brute standard. On considère ainsi les 50 % d'exploitations les plus petites, les 40 % d'exploitations intermédiaires et les 10 % d'exploitations les plus grandes. L'analyse des tendances globales et de celles par orientations technico-économiques montre que la main-d'œuvre tend à se concentrer dans les exploitations les plus grandes. L'analyse de quelques ratios caractéristiques de la structure et de la performance des exploitations révèle cependant des situations contrastées, ne permettant pas de dégager une relation univoque entre les critères analysés et la dimension économique. |
| Keywords: | évolution des structures,performance technico-économique,holdings,exploitation agricole,dimension économique,main d'oeuvre,France |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02492374&r=all |
| By: | Ketter, W.; Collins, J.; de Weerdt, M.M. |
| Abstract: | This is the specification for the Power Trading Agent Competition for 2020 (Power TAC 2020). Power TAC is a competitive simulation that models a “liberalized” retail electrical energy market, where competing business entities or “brokers” offer energy services to customers through tariff contracts, and must then serve those customers by trading in a wholesale market. Brokers are challenged to maximize their profits by buying and selling energy in the wholesale and retail markets, subject to fixed costs and constraints; the winner of an individual “game” is the broker with the highest bank balance at the end of a simulation run. Costs include fees for publication and withdrawal of tariffs, for rectifying supply-demand imbalances, for contributions to peak demand, and for customer connections. The simulation environment models a wholesale market, a regulated distribution utility, and a population of energy customers, situated in a real location on Earth during a specific period for which weather data is available. The wholesale market is a relatively simple call market, similar to many existing wholesale electric power markets, such as Nord Pool in Scandinavia or FERC markets in North America, but unlike the FERC markets we are modeling a single region, and therefore we approximate the effects of locational-marginal pricing through manipulation of the wholesale supply curve. Customer models include households, electric vehicles, and a variety of commercial and industrial entities, many of whom have production capacity such as solar panels or wind turbines. All have “real-time” metering to support allocation of their hourly supply and demand to their subscribed brokers, and all are approximate utility maximizers with respect to tariff selection, although the factors making up their utility functions may include aversion to change and complexity that can retard uptake of marginally better tariff offers. A distribution utility models the regulated natural monopoly that owns the regional distribution network, and is responsible for maintenance of its infrastructure. Real-time balancing of supply and demand is managed by a market-based mechanism that uses economic incentives to encourage brokers to achieve balance within their portfolios of tariff subscribers and wholesale market posi- tions, in the face of stochastic customer behaviors and weather-dependent renewable energy sources. Changes for 2020 are focused on stability and on making customer evaluation of regulation rates more realistic, and are highlighted by change bars in the margins. See Section 4.1.1 for details. |
| Keywords: | Autonomous Agents, Electronic Commerce, Energy, Preferences, Portfolio Management, Power, Policy Guidance, Sustainability, Trading Agent Competition |
| Date: | 2020–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureri:125794&r=all |
| By: | Elizabeth Baldwin (Dept. of Economics, Oxford University); Paul W. Goldberg (Dept. of Computer Science, Oxford University); Paul Klemperer (Dept. of Economics, Oxford University); Edwin Lock (Dept. of Computer Science, Oxford University) |
| Abstract: | This paper develops algorithms to solve strong-substitutes product-mix auctions: it finds competitive equilibrium prices and quantities for agents who use this auction’s bidding language to truthfully express their strong-substitutes preferences over an arbitrary number of goods, each of which is available in multiple discrete units. Our use of the bidding language, and the information it provides, contrasts with existing algorithms that rely on access to a valuation or demand oracle. We compute market-clearing prices using algorithms that apply existing submodular minimisation methods. Allocating the supply among the bidders at these prices then requires solving a novel constrained matching problem. Our algorithm iteratively simplifies the allocation problem, perturbing bids and prices in a way that resolves tie-breaking choices created by bids that can be accepted on more than one good. We provide practical running time bounds on both price-finding and allocation, and illustrate experimentally that our allocation mechanism is practical. |
| Keywords: | bidding language, product-mix auction, competitive equilibrium, Walrasian equilibrium, convex optimisation, strong substitutes, submodular minimisation |
| Date: | 2019–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:1908&r=all |
| By: | Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | L'application du droit de la concurrence de l'Union européenne a entamé son virage vers une approche basée sur les effets en 2003. Cette conversion a imposé de s'écarter d'une pratique décisionnelle traditionnelle axée sur la défense du processus de concurrence et non focalisée sur le critère exclusif du bien-être du consommateur. A l'heure où cette approche économique semblait définitivement s'imposer, elle fait l'objet de critiques, notamment aux États-Unis, dénonçant un possible biais conservateur se traduisant par une sous application des règles et d'une mise en question indirecte par la Commission qui réévalue dans sa pratique décisionnelle des critères auparavant négligés tels l'équité ou la protection du processus de concurrence. Cette contribution vise donc à retracer l'histoire de l'approche par les effets et de son adoption de part et d'autre de l'Atlantique. Elle traite de ses impacts sur la politique de concurrence elle-même, notamment en regard des enjeux posés par l'économie numérique. |
| Keywords: | approche par les effets, bien-être du consommateur, École de Chicago, ordolibéralisme |
| JEL: | K21 L41 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2020-16&r=all |
| By: | Toshiaki Ogawa (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: toshiaki.ogawa@boj.or.jp)) |
| Abstract: | This paper studies capital requirements and their welfare implications in a dynamic general equilibrium model of banking. I embed two, less commonly considered but important, mechanisms. Firstly, banks choose entry and exit, which lets the number of banks change endogenously. Strengthening capital requirements reduces banks' franchise value and damages their liquidity providing function through the extensive margin. Secondly, since equity issuance is costly for banks, they precautionarily hold capital buffers against future liquidity shocks. This behavior makes present capital requirements only occasionally binding. My model shows that the optimal capital requirement would be lower than that in the literature because of the expanded negative effects of capital requirements. To maintain financial stability without damaging banks' liquidity provision, strengthening capital requirements needs to be accompanied by reducing the cost of equity issuance for banks. |
| Keywords: | Bank capital requirements, Occasionally binding constraints, Endogenous default, Entry and exit, General equilibrium model |
| JEL: | E00 G21 G28 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:20-e-03&r=all |
| By: | HAMAGUCHI Nobuaki; OKANO Hideyuki; OSAJIMA Shuzo |
| Abstract: | In recent years, we have noticed a proliferation of startup firms being established in Kyushu, especially in Fukuoka City. We analyze two propositions: (1) The determinants of the startup company location are the initial costs and the expected profitability; (2) The magnitude of the initial costs and the expected profitability are influenced by regional variables. In the estimation results using nationwide municipality-level data, the size of industrial agglomeration and the degree of turnover of the local population through migration improve profitability, while competitive markets, better access to finance, and the diversity of industry structure at the local level reduce the initial costs. In the case of Kyushu data, only the competitive market environment has the effect of suppressing the initial cost of startups. In Kyushu, which is located a long distance from the central markets in Kansai or Kanto, implementing policies that minimize initial costs rather than policies that increase profitability will promote startups. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:20003&r=all |