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on Industrial Competition |
| By: | Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti |
| Abstract: | This paper investigates the determinants of vertical integration using data from the UK manufacturing sector. We find that the relationship between a downstream (producer) industry and an upstream (supplier) industry is more likely to be vertically integrated when the producing industry is more technology intensive and the supplying industry is less technology intensive. Moreover, both of these effects are stronger when the supplying industry accounts for a large fraction of the producer's costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm and industry-level characteristics. They are consistent with the incomplete contract theories of the firm that emphasize both the potential costs and benefits of vertical integration in terms of investment incentives. |
| JEL: | L22 L23 L24 L60 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:10997&r=com |
| By: | Schmalensee, Richard |
| Abstract: | US antitrust policy takes as its objective consumer welfare, not total economic welfare. With that objective, Joe Bain's definition of entry barriers is more useful than George Stigler's or definitions based on economic welfare. It follows that economies of scale that involve sunk costs may create antitrust barriers to entry. A simple model shows that sunk costs without scale economies may discourage entry without creating an antitrust entry barrier. |
| Keywords: | antitrust, U.S. antitrust policy, entry barriers, |
| Date: | 2004–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:mit:sloanp:7384&r=com |
| By: | Kira Markiewicz; Nancy L. Rose; Catherine Wolfram |
| Abstract: | Although the allocative efficiency benefits of competition are a tenet of microeconomic theory, the relation between competition and technical efficiency is less clear. Neoclassical models of profit-maximization subsume static cost-minimizing behavior regardless of market competitiveness, but traditional cost-of-service regulation may mitigate incentives for cost-minimization, and agency models of managerial behavior suggest possible scope for competition to influence cost-reducing effort choices. 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. Using data on annual generating plant-level input demand, 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, while investor-owned utility plants in restructured states significantly reduced their nonfuel operating expenses and employment. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach. |
| JEL: | L11 L43 L51 L94 D24 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11001&r=com |
| By: | Carree,Martin; Dejardin,Marcus (METEOR) |
| Abstract: | Bresnahan and Reiss (1991) derive entry thresholds (equilibrium numbers of firms) for local markets but do not investigate actual entry and exit flows. This paper investigates for thirteen Belgian retail and service industries whether markets with actual numbers of firms higher (lower) than the thresholds display exit (entry) in subsequent periods. |
| Keywords: | industrial organization ; |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2004048&r=com |
| By: | Otavio Ribeiro De Medeiros (Universidade de Brasilia, Brazil); Patricia de Souza Costa (Universidade de Brasilia, Brazil) |
| Abstract: | Conventional cost accounting assumes that the relation between cost and volume is symmetric for volume increases and decreases. We test an alternative model where costs increase more when activity rises than they decrease when activity falls by an equivalent amount. We find, for a sample of Brazilian firms that selling, general, and administrative costs increase 0.59% per 1% increase in sales but decrease only 0.32% per 1% decrease in sales. We test several hypotheses about the properties of sticky costs and how the stickiness of SG&A costs changes with firm circumstances and we confirm cost stickiness for Brazilian firms. |
| Keywords: | cost accounting, sticky costs, Brazilian firms |
| JEL: | G |
| Date: | 2004–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0412021&r=com |
| By: | Bronwyn Hall |
| Abstract: | In this paper, I briefly review the motivations for inventive behavior and describe two common incentive systems that harness and encourage such behavior. This review of well-trodden ground is performed only so that the implications of the rise of the networked knowledge economy for the effectiveness of these incentive systems can be noted. Some theoretical results on the operation and stability of the two incentive systems for the production of knowledge are presented with a discussion of how they might apply in the networked economy. The paper concludes with suggestions on open research questions. |
| Keywords: | patents, market value, information technology, appropriability |
| JEL: | O34 L86 L23 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp292&r=com |
| By: | Emilia Bonaccorsi di Patti (Bank of Italy, Economic Research Department); Giorgio Gobbi (Bank of Italy, Economic Research Department) |
| Abstract: | A large literature on the effects of bank consolidation focuses on direct efficiency gains for participating banks and market power effects. The special nature of credit markets suggests that indirect informational effects for borrowers may be generated by bank consolidation. In particular, borrowers that depend on relationship-based lending may face a reduction in credit availability because soft information gets lost if their lenders are involved in a merger. In this study we investigate the full effect of bank mergers on the availability of credit for corporate borrowers by examining a large sample of privately owned firms. We analyze the impact of bank mergers and acquisitions over time on the volume of credit and credit lines, controlling for firms characteristics. Following the literature on investment and financing constraints, we also test whether banking consolidation affects the investment-cash flow sensitivity of firms. We examine in detail the effects of bank mergers and acquisitions on firms that are small, rely on few banks, and have a high credit risk. |
| Keywords: | commercial banks, mergers and acquisitions, business lending, investment,financing constraints |
| JEL: | G21 G34 |
| Date: | 2003–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_479_03&r=com |
| By: | Mark J. Garmaise; Tobias J. Moskowitz |
| Abstract: | Using a unique sample of commercial loans and mergers between large banks, we provide microlevel (within-county) evidence linking credit conditions to economic development and find a spillover effect on crime. Neighborhoods that experienced more bank mergers are subjected to higher interest rates, diminished local construction, lower prices, an influx of poorer households, and higher property crime in subsequent years. The elasticity of property crime with respect to merger-induced banking concentration is 0.18. We show that these results are not likely due to reverse causation, and confirm the central findings using state branching deregulation to instrument for bank competition. |
| JEL: | G3 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11006&r=com |
| By: | Marcello Bofondi (Bank of Italy, Economic Research Department); Giorgio Gobbi (Bank of Italy, Econimic Research Department) |
| Abstract: | Is deregulation sufficient to grant free entry in local credit markets? Economic theory suggests at least two ways in which asymmetric information between incumbents and entrants can work as an endogenous barrier to entry. First, entrants’ pool of applicants contains a larger share of potential customers who are not creditworthy because it includes all those would-be borrowers who were previously rejected by mature banks in the market. Second, since a substantial amount of the information used by banks to screen loan applicants and monitor borrowers is generated through repeated interaction with their customers and the local business community, incumbents’ creditworthiness tests are likely to be more accurate. Other things being equal, entrants are therefore expected to experience higher loan default rates than incumbents. Using a unique database of 7,275 observations on 729 individual banks’ lending in 95 Italian local markets, we find that both adverse selection and informational disadvantage play a significant role in explaining entrants’ loan default rates. We argue that these endogenous barriers can help to explain why in many local credit markets by domestic and foreign banks was slow, even after substantial deregulation. |
| Keywords: | Credit Markets, Barriers to Entry, Winner's Curse, Asymmetric Information |
| JEL: | D82 G21 L13 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_509_04&r=com |
| By: | John J. Siegfried (Department of Economics, Vanderbilt University; American Economics Association); Molly Gardner Burba (Private Investment Banking Company LLC, New York) |
| Abstract: | The College Football Association (CFA) sold rights to broadcast live games of its members from 1984 through 1995. It competed directly with the Big Ten and Pac Ten universities that sold an alternative broadcast package. Each of the duopolists dominated certain geographic areas, so that they retained much of the monopoly power of the single NCAA cartel that they replaced. The CFA restricted output in order to elevate rights fees, and limited entry into the Association. The broadcast rights fees it collected substantially exceeded marginal cost. This article examines how the number of sellers, entry conditions, product homogeneity, and the elasticity of demand fostered the cartel, and how the cartel prevented cheating on the agreement. Eventually, disputes over the distribution of the rents led to defections. Penn State and Notre Dame left in 1990 and 1991. When the Southeastern Conference struck out independently after 1995, the CFA collapsed. It sealed its books on June 30, 1997. |
| Keywords: | Cartels, CFA, College football, football television broadcasting, NCAA |
| JEL: | L83 |
| Date: | 2003–09 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0320&r=com |
| By: | Allen R. Sanderson (University of Chicago); John J. Siegfried (Department of Economics, Vanderbilt University) |
| Abstract: | Simon Rottenberg long ago noted that the nature of sports is such that competitors must be of approximately equal ability if any are to be financially successful. In recent years, sports commentators and fans, Major League Baseball itself, and even some economists have expressed growing concern about the widening disparities among team expenditures and the growing concentrations of postseason contenders and championships. In this article we compare different concepts of competitive balance, review the theoretical and empirical scholarship on competitive balance and the relationship between payrolls and performance, describe the natural forces and institutional rules and regulations that contribute to observed distributions of playing performances, and evaluate the likely impact of several popular proposals ‚ payroll and salary caps, luxury taxes, and increased revenue sharing ‚ on competitive balance. Although the focus is on baseball, we make frequent comparisons to other sports leagues, including collegiate athletics and individual sports. |
| Keywords: | baseball, competitive balance, sports leagues |
| JEL: | L83 |
| Date: | 2003–09 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0318&r=com |
| By: | Véronique Flambard; Pierre Lasserre; Pierre Mohnen |
| Abstract: | Using nonparametric estimation techniques adapted from Guerre et al. [2000], we infer cost distributions and informational rents, from 666 snow removal contracts offered for tender by the City of Montreal. Our results are compatible with standard received theory of competitive auctions: there is a positive correlation between costs and bids; rents increase with the variance of costs and decrease with the number of bidders. Bids and costs have decreased over the sample period, while informational rents remained stable. The City deserves credit for these results. It has succeeded in exploiting economies of scale while maintaining competition; and it was instrumental in promoting above Canadian average technological progress by its design of snow-removal territories. <P>Par des méthodes non paramétriques adaptées de Guerre et al. [2000], nous évaluons la distribution des coûts et les rentes informationnelles correspondant à 666 contrats de déneigement mis aux enchères par la Ville de Montréal. Les résultats sont conformes à la théorie des enchères concurrentielles : corrélation positive entre soumissions et coûts; rentes croissantes avec la variance des coûts et décroissantes avec le nombre d’enchérisseurs. Tant les soumissions que les coûts diminuent au cours de la période, tandis que les rentes sont stables. Ces résultats sont à mettre au crédit de la Ville : elle a su exploiter les économies d’échelle sans réduire la concurrence, et susciter un progrès technologique plus élevé que la moyenne nationale grâce au découpage des territoires. |
| Keywords: | procurement auction, nonparametric estimation, informational rents, task design, municipal contracts, enchères d’approvisionnement, estimation non paramétrique, rentes d’information, conception des tâches, contrats municipaux |
| JEL: | D44 H40 |
| Date: | 2004–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2044s-59&r=com |
| By: | Ralph C Bayer (University of Adelaide); Mickey Chan (University of Adelaide) |
| Abstract: | This paper analyses dynamic pricing in markets with network externalities. Network externalities imply demand inertia, because the size of a network increases the usefulness of the product for consumers. Since past sales increase current demand, firms have an incentive to set low introductory prices to be able to increase prices as their networks grow. However, in reality we observe decreasing prices. This could be due to other factors dominating the network e¤ects. We use an experimental duopoly market with demand inertia to isolate the effect of network externalities. We find that experimental price dynamics are rather consistent with real world observations than with theoretical predictions. |
| Keywords: | Network Externalities, Demand Inertia, Experiments, Oligopoly |
| JEL: | L13 C92 |
| Date: | 2004–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0412004&r=com |
| By: | Roeger, Werner (European Commission); Warzynski, Frédéric (Department of Economics, Aarhus School of Business) |
| Abstract: | In this paper, we propose a new methodology to jointly estimate market power and the importance of sunk capital extending the work of Hall (1988) and Roeger (1995). We then apply this new technique to the European electricity industry using firm level data for the period 1994-1999, and analyze the impact of the 1996 European directive to liberalize electricity markets. We find that the average price cost margin has declined from 0.29 in 1994 to 0.22 in 1999. Moreover, the magnitude of the decline is linked to firm size: the largest firms have experienced a larger percentage fall. The variable cost parameter has increased from 0.36 in 1994 to 0.56 in 1999. The main reason of the change is the switch of the relationship between real labor productivity and the share of variable capital. Our results therefore document a more competitive electricity market and a more flexible and more efficient use of capital. |
| Keywords: | market power; fixed capital; liberalization; electricity market |
| JEL: | D24 D40 L94 |
| Date: | 2004–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:aareco:2004_017&r=com |