nep-com New Economics Papers
on Industrial Competition
Issue of 2005‒01‒23
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. A Matter of Life and Death: Innovation and Firm Survival By Cefis, E.; Marsili, O.
  2. Joint Estimation of Price-Cost Margins and Union Bargaining Power for Belgian Manufacturing By Dobbelaere, Sabien
  3. Incentive to encourage cownstream competition under bilateral oligopoly By Caprice, S.
  4. Marketing as an entrance barrier into the fashion market By Pedro Cosme Costa Vieira
  5. First-Degree Discrimination in a Competitive Setting: Pricing and Quality Choice By ENCAOUA, David; HOLLANDER, Abraham J.
  6. Merging Auction Houses By Jesse A. Schwartz; Ricardo Ungo
  7. The Effects of Market Structure on Industry Growth: Rivalrous Non-excludable Capital By Christos Koulovatianos; Leonard J. Mirman
  9. Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions By Steven D. Levitt; Chad Syverson
  10. When prices hardly matter: Incomplete insurance contracts and markets for repair goods By Martin Nell; Andreas Richter; Jörg Schiller
  11. The organization of European football and the competitive balance within and between nations By Késenne S.

  1. By: Cefis, E.; Marsili, O. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper examines the effects of innovation on the survival of manufacturing firms in the Netherlands. The demographics of firms according to their innovative performance and type of innovation are traced by using the Business Register population of all firms active in the Netherlands and the Community Innovation Survey. Through estimation of a parametric duration model, we observe that firms do benefit of an innovation premium that extends their life expectancy, independent of firm- specific traits such as age and size. Especially process innovation seems to have a distinctive effect on survival. Furthermore, our results confirm that survival chances increase with age and the growth rate of a firm, the latter representing a more crucial factor than the initial size. Finally, sectors at high intensity of technology, that is, science based and specialised suppliers are most favourable environments to the survival of firms.
    Keywords: Firm Survival;Innovation;Firms Exit;Duration models;
    Date: 2005–01–10
  2. By: Dobbelaere, Sabien (SHERPPA, Ghent University, LICOS Centre for Transition Economics, K.U. Leuven and IZA Bonn)
    Abstract: This paper extends Hall's (1988) methodology to analyse imperfections in both the product and the labour market for firms in the Belgian manufacturing industry over the period 1988- 1995. We investigate the heterogeneity in price-cost mark-up and workers' bargaining power parameters among 18 sectors within the manufacturing industry as well as the relationship between both para meters. Using a sample of more than 7 000 firms, our GMM results indicate that ignoring imperfection in the labour market leads to an underestimation in the price -cost margin evaluated at perfect competition in the labour market. These findings are confirmed in the sectoral analysis. Sectors with higher workers' bargaining power typically show higher price-cost margins.
    Keywords: efficient bargaining, bargaining power, market power, price -cost margins
    JEL: C23 D21 J50 L13
    Date: 2005–01
  3. By: Caprice, S.
    Abstract: We show that, contrary to the key result of the previous literature, input supplier's profit can increase with the number of downstream firms if the upstream firm is not a monopolist but competes with an alternative inferior supplier. ...French Abstract : Cet article montre, contrairement au résultat classique de la littérature sur les relations verticales (avec problème d'engagement sur les contrats, en amont) que le profit d'un fournisseur peut augmenter avec le nombre de distributeurs s'il n'est pas un monopole, mais est concurrencé par un autre fournisseur.
    JEL: C72 D43 L4
    Date: 2004
  4. By: Pedro Cosme Costa Vieira (Faculdade de Economia do Porto)
    Abstract: In this paper I intend to model a firm decision of entrance into a profitable fashion market where fashion results from the existence of positive interdependence between buyers utility functions. I conclude theoretically that i) when incumbent firm has an aggressive strategy it sets a marketing limit strategy that do not permit the other firm to enter the fashion market and that ii) when incumbent firm accommodates the other firm a la Cournot there is no pure strategy Nash equilibrium. The properties of the model seem to be in accordance with the persistence in time of fashion brands.
    Keywords: Fashion, Marketing, Utility interdependence, Entrance barrier
    JEL: L13 M31
    Date: 2005–01–17
  5. By: ENCAOUA, David; HOLLANDER, Abraham J.
    Abstract: The paper investigates competition in price schedules among vertically differentiated dupolists. First order price discrimination is the unique Nash equilibrium of a sequential game in which firms determine first whether or not to commit to a uniform price, and then simultaneously choose either a single price of a price schedule. Whether the profits earned by both firms are larger or smaller under discrimination than under uniform pricing depends on the quality gap between firms, and on the disparity of consumer preferences. Firms engaged in first degree discrimination choose quality levels that are optimal from a welfare perspective. The paper also reflects on implications of these findings for pricing policies of an incumbent threatened by entry.
    Date: 2005
  6. By: Jesse A. Schwartz (Department of Economics, Vanderbilt University); Ricardo Ungo (Department of Economics, Vanderbilt University)
    Abstract: In this paper, we study the incentives for market concentration of (online and traditional) auction houses. Would sellers and buyers be better off if two separate auction houses merged? We suppose that each auction house has a separate clientele of sellers and buyers. Sellers value their (identical) units at 0, while buyers have independent private values. Each auction house uses an ascending auction or by revenue equivalence any auction mechanism that allocates units efficiently among those buyers at that auction house. If no buyers are lost upon the merger, we find that efficiency gains increase, but that the expected sellers' revenue increases by more than the efficiency gains, leaving the buyers worse off. This result extends Bulow and Klemperer's (1996) insight that the competition of an additional bidder increases auction revenue by more than the ability to commit to an optimal auction with one less bidder; in our model, the extra competition created by having all of the bidders bid against each other after the merger more than offsets any supply effects. With an example, we show that if buyers choose whether to participate or not, it is possible upon a merger that so many buyers are lost, the sellers are actually worse off. We conclude that without transfers from sellers to buyers, the merger may or may not be profitable for sellers.
    Keywords: Auctions, mergers
    JEL: C78 D44
    Date: 2003–02
  7. By: Christos Koulovatianos; Leonard J. Mirman
    Abstract: We analyze imperfect competition in dynamic environments where firms use rivalrous but nonexcludable industry-specific capital that is provided exogenously. Capital depreciation depends on utilization, so firms influence the evolution of the capital equipment through more or less intensive supply in the final-goods market. Strategic incentives stem from, (i) a dynamic externality, arising due to the non-excludability of the capital stock, leading firms to compete for its use (rivalry), and, (ii) a market externality, leading to the classic Cournot-type supply competition. Comparing alternative market structures, we isolate the effect of these externalities on strategies and industry growth.
    JEL: D43 D92 L13 O12 Q20
    Date: 2005–01
  8. By: Zulima Fernández; María J. Nieto
    Abstract: Many advantages have been ascribed to the Internet. Although it lacks the necessary elements to be regarded as a strategic resource, the Internet seems to be a useful tool to provide support for business strategies.In this work we discuss how the Internet can be used to support the development of capabilities and define firm boundaries. Using a sample of Spanish firms, empirically analysed, we find positive relationships between the use of the Internet and product differentiation, as well as the introduction of organizational changes. In addition, we present evidence that the Internet reduces both internal coordination costs and transaction costs as a result of the positive relationships found between the use of the Internet, the degree of vertical integration and the establishment of technological agreements with suppliers and customers.
    Date: 2005–01
  9. By: Steven D. Levitt; Chad Syverson
    Abstract: Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired by others to sell a home to instances in which a real estate agent sells his or her own home. In the former case, the agent has distorted incentives; in the latter case, the agent wants to pursue the first-best. Consistent with the theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics. Situations in which the agent's informational advantage is larger lead to even greater distortions.
    JEL: D8 L1 L8 R2
    Date: 2005–01
  10. By: Martin Nell (University of Hamburg); Andreas Richter (Illinois State University); Jörg Schiller (WHU – Otto Beisheim Graduate School of Management)
    Abstract: This paper looks at markets characterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequences of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured’s actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon the development of prices and the market structure in markets with insured customers, and, on the other hand, the resulting backlash on optimal insurance contracting.
    Keywords: Incomplete Contracts, Insurance, Repair Markets
    Date: 2005–01–14
  11. By: Késenne S.
    Abstract: In this paper, we try to show that, apart from the negative impact of the Champions League, the growing gap between the Big 5 football countries in Europe and the smaller countries is caused by the deregulation of the European player labour market without deregulating the European football product market. Both the growing competitive balance between and within the national leagues can be restored by opening the European football market. A simple 2 country / 4 club model with quadratic revenue functions is specified to prove this argument.
    Date: 2005–01

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