nep-com New Economics Papers
on Industrial Competition
Issue of 2005‒02‒20
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Innovation Strategies in a Competitive Dynamic Setting By Ruslan Lukach; Joseph Plasmans; Peter M. Kort
  2. The Sunk Cost Bias and Managerial Pricing Practices By Nabil Al-Najjar; Sandeep Baliga; David Besanko
  3. Some Economics of Digital Content By Dolfsma, W.
  4. The economics of books By Canoy,Marcel; Ours,Jan C. van; Ploeg,Frederick van der
  5. Market Power in the Spanish Electricity Auction. By Aitor Ciarreta; Mari Paz Espinosa
  6. Competition, Regulation, and Intellectual Property Management in Genetically Modified Foods: Evidence from Survey Data By Pierre Regibeau; Katharine Rockett
  7. Two-sided network effects, bank interchange fees, and the allocation of fixed costs By Bergman, Mats
  8. Determinants of high-royalty contracts and the impact of stronger protection of intellectual property rights in Japan By Sadao Nagaoka
  9. Understanding Strategic Bidding in Restructured Electricity Markets: A Case Study of ERCOT By Ali Hortacsu; Steven L. Puller
  10. The role of technical efficiency in takeovers : evidence from the french cheese industry, 1985-2000 By Chaaban, J.; Réquillart, V.; Trévisiol, A.
  11. Experiments on Auction Valuation and Endogenous Entry By Elena Katok; Richard Engelbrecht-Wiggans

  1. By: Ruslan Lukach; Joseph Plasmans; Peter M. Kort
    Abstract: This paper presents a dynamic model of a competitive R&D and production duopoly subject to knowledge spillovers. Two asymmetric firms operate for a limited period of time and dispose their knowledge capital in the end. Both firms and the social planner prefer the R&D-cooperative strategy over the competitive one regardless of the intensity of knowledge spillovers. Accumulation of knowledge capital results allows the monopolist to have lower marginal cost of production and charge a lower market price than a fully competitive duopoly. Being able to define the degree of knowledge exchange when creating a research joint venture, the firms do not necessary choose the highest degree of cooperation available.
    Keywords: innovation, R&D, spillovers, cooperation
    JEL: C72 D21 O31
    Date: 2005
  2. By: Nabil Al-Najjar; Sandeep Baliga; David Besanko
    Date: 2005–02–10
  3. By: Dolfsma, W. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The music industry is currently subject to changes influenced by ongoing digitalisation and informatization that are unprecedented. Other sectors can expect to undergo in the near future what the media industry is going through now – the movie industry being a prime suspect. Each day, some 600,000 copies of movies are exchanged via the Internet, most of these in violation of the copyright laws. The disruptive nature of technological development makes that the market for entertainment products and other content undergoes fundamental changes. Where ‘content’ used to be exchanged attached to a physical carrier, increasingly it has the features of an information product.
    Keywords: internet market;digital content;product differentiation;price discrimination;consumer as subcontractor;product development;
    Date: 2004–06–23
  4. By: Canoy,Marcel; Ours,Jan C. van; Ploeg,Frederick van der (Tilburg University, Center for Economic Research)
    Abstract: The tensions between books and book markets as expressions of culture and books as products in profit-making businesses are analysed and insights from the theory of industrial organisation are given. Governments intervene in the market for books through laws concerning prices of books, grants for authors and publishers, a lower value-added tax, public libraries and education in order to stimulate the diversity of books on offer, increase the density of retail outlets and to promote reading. An overview of the different ways by which countries differ in terms of market structures and government policies is given. Particular attention is paid to retail price maintenance. Due to differences between European countries it is not a good idea to harmonise European book policies. Our analysis suggests that the book market seems quite able to invent solutions to specific problems of the book trade and that, apart from promoting reading, there is little need for government intervention.
    JEL: Z11 D4 D6 L1 L4
    Date: 2005
  5. By: Aitor Ciarreta (Universidad del País Vasco); Mari Paz Espinosa (Universidad del País Vasco)
    Keywords: market power, electricity market
    JEL: L11 L13 L51
    Date: 2005–02–11
  6. By: Pierre Regibeau; Katharine Rockett
    Abstract: We present survey results regarding a series of hypotheses on industry structure, regulation and patent policy towards GM food crops, focussing on the stages of the industry that generate innovations and approved products for sale to the farming sector. Licensing as a means of delegating litigation and regulatory costs comes out as one of the most consistent themes in our responses. We link this practice to a two-tiered industry structure, a weak relation between litigation threat and research trajectory, and a perception by our respondents that patents - as well as patent design - are "one step removed" from their research decisions.
    Date: 2005–01–13
  7. By: Bergman, Mats (Dept. of Economics, Stockholm University)
    Abstract: Two-sided network effects in card payment systems are analysed under different market structures, e.g., competition, one-sided monopoly, bilateral monopoly and duopoly; with and without an interchange fee; for the so-called Baxter case of non-strategic merchants. A partial ranking of market structures according to their welfare effects is provided. Fixed central (card) system costs are introduced and analysed under free entry and duopoly. It is shown that under free entry, a per-transaction distribution of fixed costs is preferrable to dividing the fixed cost in equal proportions between the paritcipants. Under duopoly, (and no entry) a fixed division of central costs will yield lower prices.
    Keywords: Two-sided markets; card payentd; payment systems; acquiring; issuing; market structure
    JEL: G21 L11 L44
    Date: 2005–01–03
  8. By: Sadao Nagaoka
    Abstract: This paper first reviews how Japan has strengthened the protection of intellectual property rights (IPRs), focusing on the expansion of the patentable subject matter, the restriction of the possibility of compulsory licensing, stronger deterrence against infringement and the introduction of the doctrine of equivalents. Second, based on the statistical analysis of sector-level panel data, it shows that (1)R&D intensity of domestic industry, trademark licensing, cross-licensing and, to a smaller degree, monopoly provisions are the significant determinants of the incidence of high-royalty contracts, and (2)Stronger protection of intellectual property rights looks to have increased the incidence of high-royalty contracts in the latter part of 1990s in the Japanese industries for which patent is important for appropriability.
    Keywords: Intellectual property rights, Licensing contract, Appropriability, Patent
    JEL: F23 O34
    Date: 2004–12
  9. By: Ali Hortacsu; Steven L. Puller
    Abstract: We examine the bidding behavior of firms competing on ERCOT, the hourly electricity balancing market in Texas. We characterize an equilibrium model of bidding into this uniform-price divisible-good auction market. Using detailed firm-level data on bids and marginal costs of generation, we find that firms with large stakes in the market performed close to theoretical benchmarks of static, profit-maximizing bidding derived from our model. However, several smaller firms utilized excessively steep bid schedules that deviated significantly from our theoretical benchmarks, in a manner that could not be empirically accounted for by the presence of technological adjustment costs, transmission constraints, or collusive behavior. Our results suggest that payoff scale matters in firms' willingness and ability to participate in complex, strategic market environments. Finally, although smaller firms moved closer to theoretical bidding benchmarks over time, their bidding patterns contributed to productive inefficiency in this newly restructured market, along with efficiency losses due to the close-to optimal exercise of market power by larger firms.
    JEL: L1 L2 L5 L9
    Date: 2005–02
  10. By: Chaaban, J.; Réquillart, V.; Trévisiol, A.
    Abstract: The paper aims to identify whether production characteristics, such as technical efficiency and returns to scale, affect takeovers. Applying a two-stage procedure on original panel data on french ceese manufacturers, the paper first estimates firm-specific productive efficiency and scale economies using Data Envelopment Analysis. The paper then uses the findings of the first stage to evaluate a random effects logit model of the determinants of takeover in the french cheese industry for the period 1985-2000. The paper finds that technical efficiency is not a significant determinat of takeovers, whereas the nature of scale economies is. Firms with Decreasing Returns to Scale (i. e. an over-sized production capacity) face a higher risk of takeover. This suggests that cheese manufacturers have been seeking to expand their milk processing capacities by acquiring large firms. This proves to be an indirect consequence of the non-transferable milk quota regime affecting the scarce milk input commodity. ...French Abstract : Ce papier vise à identifier si les caractéristiques de production, telles que l'efficacité et les économies d'échelle, affectent le rachat des entreprises. Appliquant une méthode à deux étapes sur des données originales de panel issue de l'industrie fromagère en France, on estime d'abord les économies d'échelles et l'efficacité technique pour chaque firme en utilisant la méthode Data Envelopment Analysis DEA. On utilise les résultats de la première étape pour estimer un modèle de logit aléatoire des déterminants du rachat des entreprises dans l'industrie fromagère française pour la période 1985-2000. Les résultats montrent que les économies d'échelle, et non l'efficacité technique, sont un facteur essentiel dans la décision d'acquisition d'une entreprise par une autre. On montre aussi que les entreprises rachetées ont des rendements décroissants (donc une structure et une taille relativement grande), des charges financières élevées (traduisant un certain endettement) mais ne constituent pas de coopératives.
    JEL: C23 L11 L66
    Date: 2004
  11. By: Elena Katok (Laboratory for Economic Management and Auctions, Penn State University); Richard Engelbrecht-Wiggans (College of Business, University of Illinois)
    Abstract: We present results of several experiments that deal with endogenous entry in auctions and auction valuation. One observation that is constant across all of the experiments we report is that laboratory subjects have a difficult time evaluating potential gains from auctions. Even after they are given some experience with particular auctions, the uncertainty inherent in the auctions (the probability of winning as well as the potential gains from winning) makes it difficult for subjects to compare different auction mechanisms. This highlights the need for new experimental procedures to be used for testing theories that involve endogenous auction entry in the laboratory.
    Keywords: Experiments on Auction Valuation and Endogenous Entry
    JEL: C72 D83 D44 C91
    Date: 2004–10–01

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