nep-com New Economics Papers
on Industrial Competition
Issue of 2005‒03‒20
seven papers chosen by
Russell Pittman
US Department of Justice

  2. Is There Really an Inverted U-shaped Relation Between Competition and R&D? By Poldahl, Andreas; Gustavsson Tingvall, Patrik
  3. Models of supply functions competition with application to the network auctions By Vasin Alexander; Vasina Polina
  4. Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions By Dechenaux, Emmanuel; Kovenock, Dan
  5. Product entry in a fast growing industry: the LAN switch market By Roberto Fontana; Lionel Nesta
  6. Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary By Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern
  7. Price-Cost Margins and Economic Integration: How Important is the Pro-Competitive Effect? By Oscar Bajo-Rubio; Carmen Díaz-Roldán; Antonio G. Gómez-Plana

  1. By: Chrysovalantou Milliou; Emmanuel Petrakis
    Abstract: Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not always have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains.
    Date: 2005–03
  2. By: Poldahl, Andreas (FIEF); Gustavsson Tingvall, Patrik (FIEF)
    Abstract: We test whether predictions of the Aghion and Howitt (2004) model are supported by firm level data. In particular, we analyze if there is an inverted U-shaped relation between competition and R&D. Results show that the inverted U-shaped relation is supported by the Herfindahl index but not by the price cost margin. Using the Herfindahl index results suggest that breaking up monopolies increases R&D while further increases in competition most likely leads to reduced R&D. Comparing different estimators, we find that time-series based estimators typically result in less clear-cut results, probably driven by a lack of time series variation in measures of competition.
    Keywords: R&D; Competition; Firm size; Spillovers
    JEL: D40 L10 L60 O30
    Date: 2005–02–27
  3. By: Vasin Alexander; Vasina Polina
    Abstract: This paper studies different auctions of supply functions in a local market and a simple network market of a homogeneous good with two nodes and a fixed transmission loss per unit of the good. We study problems of existence, uniqueness and computation of Nash equilibria for these models. We also obtain the estimate of Nash equilibria deviation from the Walrasian equilibrium for each variant. We consider the problem of optimal auction organization from the point of view of the social welfare maximization.
    Keywords: Russia, supply function auction, Cournot, Vickrey, Russian electricity market
    JEL: D44
    Date: 2005–03–01
  4. By: Dechenaux, Emmanuel (Kent State University); Kovenock, Dan (Purdue University)
    Abstract: This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this outcome. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount factor above which the perfectly collusive outcome with equal sharing is sustainable on a stationary path. Under the Market Clearing Price rule, only one step is required. That is, within the class of step bidding functions with a finite number of steps, maximal collusion is attained with simple price-quantity strategies exhibiting capacity withholding.
    Keywords: Auction; Capacity; Collusion; Electricity Market; Supply Function
    JEL: D43 D44 L13 L41 L94
    Date: 2005–03–01
  5. By: Roberto Fontana (CESPRI, Bocconi University, Milan); Lionel Nesta (SPRU, University of Sussex)
    Abstract: We provide empirical evidence on market positioning by firms, in terms of market niche, distance from technological frontier and dispersion. We focus on the switch industry, a sub-market of the Local Area Network industry, in the nineties. Market positioning is a function of the type of firms (incumbents versus entrants), market size and contestability and firm competencies. We find that incumbents specialise in high-end segments and disperse their product in a larger spectrum of the market. Instead, entrants focus on specific market niches. Market size, market contestability and firm competencies are also important determinants of product location.
    Keywords: switch industry, markets, competition, firm capabilities, product entry
    JEL: L11 L63
    Date: 2004–10–10
  6. By: Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern
    Abstract: Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms’ markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms’ price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.
    Keywords: markup pricing, market imperfections, return to scale, Bulgaria, Hungary
    JEL: C23 D21 D24
    Date: 2004–07–01
  7. By: Oscar Bajo-Rubio; Carmen Díaz-Roldán; Antonio G. Gómez-Plana

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