nep-com New Economics Papers
on Industrial Competition
Issue of 2004‒12‒12
24 papers chosen by
Russell Pittman
US Department of Justice

  1. Competition Among Hospitals By Martin Gaynor; William Vogt
  2. Spatial Competition in the Network Television Industry By Ronald Goettler; Ron Shachar
  3. The Electricity Market Game By Stephen Spear
  5. Liberalisation of network industries : is electricity an exception to the rule? By Coppens,F.; Vivet,D.
  6. Dynamic regulation and entry in telecommunications markets : a policy framework By Bijl,P.W.J. de; Peitz,M.
  7. Structural separation and access in telecommunications markets By Bijl,P.W.J. de
  8. Determination of optimal penalties for antitrust violations in a dynamic setting By Motchenkova,E.
  9. Effects of leniency programs on cartel stability By Motchenkova,E.
  10. On the Desirability of an Efficiency Defense in Merger Control By Johan N. M. Lagerlof; Paul Heidhues
  11. Can auctions control market power in emissions trading markets. By R. Andrew Muller; Stuart Mestelman; John Spraggon; Rob Godby
  12. Electricity Liberalisation in Britain: the quest for a satisfactory wholesale market design By David Newbery
  13. Electricity Market Reform in the European Union: Review of progress towards liberalisation and integration By Tooraj Jamasb; Michael Pollitt
  14. On Holders, Blades and Other Tie-In Sales By Alain Egli
  15. Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency By Karl Markiewicz; Nancy L. Rose; Catherine Wolfram
  16. A Note on Costly Sequential Search and Oligopoly Pricing By Maarten C. W. Janssen; José Luis Moraga-González; Matthijs R. Wildenbeest
  17. Antitrust Analysis of Tying Arrangements By Jay Pil Choi
  18. Mergers, Acquisitions, Joint Ventures and Strategic Alliances in Agricultural Cooperatives By Darren Hudson; Bill Herndon
  19. Umbrella Branding and the Provision of Quality By Hakenes, Hendrik; Peitz, Martin
  20. Design of the 3G Spectrum Auctions in the UK and in Germany: An Experimental Investigation By Seifert, Stefan; Ehrhart, Karl-Martin
  21. Competition and Confidentiality: Signaling Quality in a Duopoly when there is Universal Private Information By Andrew F. Daughety; Jennifer F. Daughety
  22. Horizontal mergers in the circular city : a note By Andreea Cosnita
  23. Endogenous Market Structure with Discrete Product Differentiation and Multiple Equilibria: An Empirical Analysis of Competition Between Banks and Thrifts By Mark D. Manuszak; Andrew Cohen
  24. The Impact of Upstream Mergers on Retail Gasoline Markets By Mark D. Manuszak

  1. By: Martin Gaynor; William Vogt
    Abstract: Our objective is to determine the effect of ownership type (for-profit, not-for-profit, government) on firm conduct in hospital markets. Secondary objectives include estimating hospital demand systems useful for market definition and merger simulation. To this end, we estimate a structural model of demand and pricing in the short term hospital industry in California, and then use the estimates to simulate the effect of a merger. Demand is modeled at the level of individual consumers using discrete choice techniques and micro data on individuals. Price in the demand equation is endogenous, and we use recently developed instrumental variables techniques to correct for this. We allow the behavior of for-profit and not-for-profit firms to differ, modeling these differences structurally following the relevant theory literature. We find that California hospitals in 1995 faced a downward-sloping demand for their products, with an average price elasticity of demand of -5.67. Not-for-profit hospitals face less elastic demand and have lower marginal costs. Their prices are lower, but markups are higher than those of for-profits. We simulate the effects of the 1997 merger of two hospital chains. In unconcentrated markets such as Los Angeles and San Diego, the merger has virtually no effect on prices. However, in San Luis Obispo County, where the merger creates a near monopoly, prices rise by up to 58%, and the predicted price increase would not be substantially smaller were the chains to be not-for-profit.
    Date: 2002–11
  2. By: Ronald Goettler; Ron Shachar
    Abstract: We present an empirical study of spatial competition and a methodology to estimate demand for products with unobservable characteristics. Using panel data, we estimate a discrete choice model with latent product attributes and unobserved heterogenous consumer preferences. Our application of the methodology to the network television industry yields estimates that are consistent with experts' views. Given our estimates, we compute Nash equilibria of a product location game, and find that firms' observed strategies (such as the degree of product differentiation) are generally optimal. Discrepancies between actual and optimal strategies reflect the networks' adherence to "rules of thumb," and possibly, bounded rationality behavior.
  3. By: Stephen Spear
    Abstract: This paper examines the effects of imperfect competition in unregulated electricity markets from a general equilibrium perspective, and demonstrates that horizontal market power can explain both the large peak-period price spikes observed recently in California and elsewhere, and the marked reduction in additions to capacity that have also occurred during the transition to competitive markets.
  4. By: Laura Romero; Elena del Rey
    Abstract: The rapid growth of private higher education in response to high demand is a recent phenomenon in most European countries. This paper provides a theoretical model of the higher education market in which a public and a private university compete for students in the presence of borrowing constraints. We find that there exists a unique equilibrium in which the public institution is of higher quality than the private institution. This result supports the observation across many European countries that public universities have usually higher quality and admission standards than their private competitors.
    Date: 2004–11
  5. By: Coppens,F.; Vivet,D. (Nationale Bank van Belgie)
    Date: 2004
  6. By: Bijl,P.W.J. de; Peitz,M. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  7. By: Bijl,P.W.J. de (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  8. By: Motchenkova,E. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  9. By: Motchenkova,E. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  10. By: Johan N. M. Lagerlof (Department of Economics, Royal Holloway, University of London); Paul Heidhues (WZB Berlin)
    Abstract: We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority’s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.
    Keywords: lobbying, rent seeking, asymmetric information, disclosure, ef- ficiency gains, antitrust.
    JEL: D72 D82 K21 L40
    Date: 2004–10
  11. By: R. Andrew Muller; Stuart Mestelman; John Spraggon; Rob Godby
    Abstract: Using eight sessions (twenty-four ten-period markets) in a double ABA cross-over design, we demonstrate clear evidence of market power in double-auction emission trading markets (agents who are not constrained to only buy or sell). Conventional theory predicts that in half of the market-power environments monopsony should emerge and in half monopoly should emerge. Market-power outcomes are frequently observed, most often in the form of price discrimination, and most effectively by monopsonists.
    Date: 1999–12
  12. By: David Newbery
    Abstract: Britain was the exemplar of electricity market reform, demonstrating the importance of ownership unbundling and workable competition in generation and supply. Privatisation created de facto duopolies that supported increasing price-cost margins and induced excessive (English) entry. Concentration was ended by trading horizontal for vertical integration in subsequent mergers. Competition arrived just as the Pool was replaced by New Electricity Trading Arrangements (NETA) intended to address its claimed shortcomings. NETA cost over £700 million, and had ambiguous market impacts. Prices fell dramatically as a result of (pre-NETA) competition, generating companies withdrew plant, causing fears about security of supply and a subsequent widening of price-cost margins.
    Keywords: electricity, liberalisation, market design, market power
    JEL: L94 D43
    Date: 2004–11
  13. By: Tooraj Jamasb; Michael Pollitt
    Abstract: The energy market liberalisation process in Europe is increasingly focused on electricity market integration and related cross border issues. This signals that the liberalisation of national electricity markets is now closer to the long-term objective of a single European energy market. The interface between the national electricity markets requires physical interconnections and technical arrangements. However, further progress towards this objective also raises important issues regarding the framework within which the integrated market is implemented. This paper reviews the progress towards a single European electricity market. We then discuss the emerging issues of market concentration, investments, and security of supply as well as some aspects of market design and regulation that are crucial for dynamic performance of a single European market.
    Keywords: Electricity, energy, liberalisation, regulation, integration, European Union
    JEL: L11 L22 L Q48
    Date: 2004–11
  14. By: Alain Egli
    Abstract: Tie-in sales have a bad image because of anti-competitive effects. Notably, tying contracts allow monopolists to carry over monopoly power into markets where they meet competition. Most of the literature assumes a firm being monopolist in one market and facing competition in another. In contrast, we analyze two firms which both are monopolists in one market and competitors in the other. Under such a symmetric structure tying has competitive effects. Tie-in sales may increase the consumers’ expected utility. By tying their products, the firms insure consumers against uncertain future demand
    Keywords: Tie-in sales; leverage theory of tying; competition; expected utility
    JEL: D21 D31 D43 L11
    Date: 2004–07
  15. By: Karl Markiewicz; Nancy L. Rose; Catherine Wolfram
    Abstract: This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.
    Keywords: Efficiency, Production, Competition, Electricity restructuring, Electric Generation, Regulation
    JEL: L11 L43 L51 L94 D24
    Date: 2004–11
  16. By: Maarten C. W. Janssen; José Luis Moraga-González; Matthijs R. Wildenbeest
    Abstract: We modify the paper of Stahl (1989) on sequential consumer search in an oligopoly context by relaxing the assumption that consumers obtain the first price quotation for free. When all price quotations are costly to obtain, a new equilibrium arises where consumers randomize between not searching at all and searching for one price. The region of parameters for which this equilibrium exists becomes larger as the number of shoppers decreases and/or the number of firms increases. The comparative statics properties of this new equilibrium are interesting. In particular, the expected price increases as search cost decreases, and is constant in the number of shoppers and in the number of firms. We show that the Diamond result never obtains with truly costly search.
    Keywords: sequential consumer search, oligopoly, price dispersion
    JEL: C13 D40 D83 L13
    Date: 2004
  17. By: Jay Pil Choi
    Abstract: Tying arrangements recently have been a major and contentious issue in many high profile antitrust cases in the US and Europe. Examples include the Microsoft case, the Visa and MasterCard case, and the proposed GE/Honeywell merger to name a few. This paper conducts a selective review of the recent developments in the analysis of tying arrangements. It also discusses relevant antitrust cases concerned with tying arrangements in light of recent theoretical advances in this area.
    JEL: K21 L10
    Date: 2004
  18. By: Darren Hudson (Mississippi State University); Bill Herndon (Mississippi State University)
    Abstract: A recent merger “wave” has occurred within the economy, including the agricultural sector. Some research has been conducted on publicly traded companies, but there is little information available on merger activity within agricultural cooperatives. This paper presents the results of a recent survey of agricultural cooperatives and attempts to identify major trends in merger activity within cooperatives.
    Keywords: mergers, acquisitions, joint ventures, strategic alliances, agricultural cooperatives
    JEL: L
    Date: 2004–12–08
  19. By: Hakenes, Hendrik (Sonderforschungsbereich 504); Peitz, Martin (International University in Germany)
    Abstract: Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability that low quality will be detected is in an intermediate range, the firm produces high quality under umbrella branding whereas it would sell low quality in the absence of umbrella branding. Hence, umbrella branding mitigates the moral hazard problem. We also find that umbrella branding survives in asymmetric markets and that even unprofitable products may be used to stabilize the umbrella brand. However, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.
    Date: 2004–11–26
  20. By: Seifert, Stefan (Universitaet Karlsruhe, IWM); Ehrhart, Karl-Martin (Universitaet Karlsruhe)
    Abstract: This paper analyses the auction designs chosen for awarding 3G licenses in the UK and in Germany and compares them with respect to revenues and bidders’ surplus using a laboratory experiment. In our study with a given number of bidders, the German design leads to higher revenues. However, bidder surplus in the German design is lower and bidders face a severe exposure problem. Because this might discourage participation, it will probably lead to less competitive bidding in real applications.
    Date: 2004–12–03
  21. By: Andrew F. Daughety (Department of Economics and Law School, Vanderbilt University); Jennifer F. Daughety (Department of Economics and Law School, Vanderbilt University)
    Abstract: How does the need to signal quality through price affect equilibrium pricing and profits, when a firm faces a similarly-situated rival? In this paper, we provide a model of non-cooperative signaling by two firms that compete over a continuum of consumers. We assume "universal incomplete information;" that is, each market participant has some private information: each consumer has private information about the intensity of her preferences for the firms' respective products and each firm has private information about its own product's quality. We characterize a symmetric separating equilibrium in which each firm's price reveals its respective product quality. We focus mainly on a model in which the quality attribute is safety (so that the legal system is brought into play) and quality is unobservable due to the use of confidential settlements; a particular specification of parameters yields a common model from the industrial organization literature in which quality is interpreted as the probability that a consumer will find the good satisfactory. We show that the equilibrium prices, the difference between those prices, the associated outputs, and profits are all increasing functions of the ex ante probability of high safety. When quality is interpreted as consumer satisfaction, unobservable quality causes all prices to be distorted upward, and lowers average quality and ex ante expected social welfare, but increases ex ante expected firm profits (when either the probability of high quality or the extent of horizontal product differentiation is sufficiently high). When quality is interpreted as product safety, the foregoing results are modified in that for some parameter values ex ante expected social welfare is higher under confidentiality because such legal secrecy lowers expected litigation costs.
    Keywords: Signaling, quality, safety, confidentiality, duopoly
    JEL: D43 D82 K13 L15
    Date: 2004–07
  22. By: Andreea Cosnita (EUREQua)
    Abstract: We investigate the profitability and locational effects of two-firm Cournot mergers in the circular city. As compared with the linear market, we find that mergers turn out to be unprofitable much earlier.
    Keywords: Horizontal merger, endogenous location, circular city
    JEL: D43 L13
    Date: 2004–02
  23. By: Mark D. Manuszak; Andrew Cohen
    Date: 2004–11
  24. By: Mark D. Manuszak

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