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on Industrial Competition |
| By: | Daron Acemoglu; Asuman E. Ozdaglar |
| Date: | 2005–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:172782000000000025&r=com |
| By: | Volker Nocke (Department of Economics, University of Pennsylvania); Lucy White (Harvard Business School) |
| Abstract: | We investigate the impact of vertical mergers on upstream firms' ability to sustain tacit collusion in a repeated game. We identify several effects and show that the net effect of vertical integration is to facilitate collusion. Most importantly, vertical mergers facilitate collusion through the operation of an outlets effect: cheating unintegrated firms can no longer profitably sell to the downstream affiliates of their integrated rivals. However, vertical integration also gives rise to an opposing punishment effect: it is typically more difficult to punish an integrated structure, so that integrated firms are able to make more profits in the punishment phase than unintegrated upstream firms. When downstream firms can condition their prices or quantities on upstream firms' contract offers, two additional effects arise, both of which further facilitate upstream collusion. First, an unintegrated upstream firm's deviation profits are reduced by the reaction effect which arises since the downstream unit of the integrated firm will now react aggressively to upstream deviations. Second, an integrated firm's deviation profit is reduced by the lack-of-commitment effect as it cannot commit to its own downstream price when deviating upstream. |
| Keywords: | vertical merger, collusion, vertical restraint, vertical integration, repeated game, penal code |
| JEL: | L13 L42 D43 |
| Date: | 2005–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:05-013&r=com |
| By: | Navas,Jorge; Kort,Peter M. (Tilburg University, Center for Economic Research) |
| Abstract: | In this paper we analyze cooperation in R&D in the form of RJVs. We show that the optimal size of an RJV does not only depend on the degree of spillovers, as literature suggests, but also on the cost function of R&D activities. Moreover, the explicit consideration of the fact that R&D projects take time to complete shows that benefits from cooperation in R&D not only allow RJVs to carry out larger R&D projects, but also to reduce the time to completion for projects with a given size and, consequently, to accelerate the acquisition of the benefits associated with the innovation. |
| JEL: | C73 L13 O31 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200529&r=com |
| By: | Crampes, Claude; Langinier, Corinne |
| Abstract: | Intellectual property rights are legal constraints that limit entry in industries where incumbents are innovators. The set of legal constraints is the same for all industries, without considering that the externalities created by entry are not necessarily negative for the incumbent or that the incumbent's R&D expenditures can be detrimental to entrants. We show that one unique set of legal rules can foster innovation and increase total R&D expenditures in some industries and be detrimental in others. The model is illustrated by case studies from the information and communication technologies industry (software, hardware, music and videogame industries). |
| JEL: | L1 |
| Date: | 2005–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12267&r=com |
| By: | Sougata Poddar (National University of Singapore); Uday Bhanu Sinha (Indian Statistical Institute) |
| Abstract: | In the literature of patent licensing, most of the studies are done where new technology is transferred from a cost-efficient firm (patentee) to a less efficient firm (licensee). However, R&D intensive firms are usually based in high wage countries whereas the cost-efficient firms are based in low wage countries. As a result R&D intensive firms are not necessarily the most cost -efficient firms in the industry, although in most cases they are the patentee firms. Given this backdrop, we study a situation of patent licensing where the technology transfer takes place from an innovative firm, which is relatively inefficient in terms of cost of production to its cost-efficient rival. We look for optimal licensing arrangements in this environment. This framework also provides a platform to bridge the literature on external and internal patentees. |
| Keywords: | licensing, fixed fee, royalty, two-part tariff, quantity competition, Innovation |
| JEL: | D43 D45 L13 |
| URL: | http://d.repec.org/n?u=RePEc:nus:nusewp:wp0503&r=com |
| By: | Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado) |
| Abstract: | Before 1978, most of the U.S. domestic copper production and an important fraction of the imports were traded at a price set by the major U.S. producers. Simultaneously, the rest of the world was trading copper at prices determined in auction markets. This two-price system ended in 1978, when the largest U.S. producers began using the Comex price of refined copper as a benchmark for setting their prices. Using this regime shift I test empirically the competitive behavior of the US copper industry before 1978. The results show that copper prices were close to the ones predicted by a competitive model of the industry. |
| Keywords: | Copper Industry, Market Power |
| JEL: | D40 D43 L13 L61 L72 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:ila:ilades:inv159&r=com |
| By: | Daniel P. Kessler; Jeffrey J. Geppert |
| Abstract: | We estimate the effects of hospital competition on the level of and the variation in quality of care and hospital expenditures for elderly Medicare beneficiaries with heart attack. We compare competition's effects on more-severely ill patients, whom we assume value quality more highly, to the effects on less-severely ill, low-valuation patients. We find that low-valuation patients in less-competitive markets receive more intensive treatment than in more-competitive markets, but have statistically similar health outcomes. In contrast, high-valuation patients in less-competitive markets receive less intensive treatment than in more-competitive markets, and have significantly worse health outcomes. Since this competition-induced increase in variation in expenditures is, on net, expenditure-decreasing and outcome-beneficial, we conclude that it is welfare-enhancing. These findings are inconsistent with conventional models of vertical differentiation, although they can be accommodated by more recent models. |
| JEL: | I1 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11226&r=com |
| By: | Yanna Wu (PricewaterhouseCooper LLP); Subhash C. Ray (University of Connecticut) |
| Abstract: | This study examines the relationship between stock market reaction to horizontal merger announcements and technical efficiency levels of the participating firms. The analysis is based on data pertaining to eighty mergers between firms in the U.S. manufacturing industry during the 1990s. We employ Data Envelopment Analysis (DEA) to measure technical efficiency, which capture the firms. competence to produce the maximum output given certain productive resources. Abnormal returns related to the merger announcements provide the investor.s re-evaluation on the future performance of the participating firms. In order to avoid the problem of nonnormality, heteroskedasticity in the regression analysis, bootstrap method is employed for estimations and inferences. We found that there is a significant relationship between technical efficiency and market response. The market apparently welcomes the merger as an arrangement to improve resource utilizations. |
| JEL: | G14 C61 C15 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-05&r=com |
| By: | Harrison Cheng |
| Abstract: | A widely accepted view says that Folk Theorem holds in the repeated Cournot oligopoly games with imperfect price signals satisfying generic conditions. We show that this view is not justi- fied. We argue that maintaining asymptotic joint monopoly outcome is not possible with noisy price signals. When firms have the choice of increasing outputs at equilibrium as a deviation strategy, it is not possible to maintain such collusive outcome, even if the discount rate is close to 1. |
| Keywords: | Oligopoly, ineffciency, repeated games, imperfect price signal, Folk Theorem |
| JEL: | D23 D8 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:scp:wpaper:05-12&r=com |
| By: | Guofu Tan; Okan Yilankaya |
| Abstract: | We investigate whether efficient collusive bidding mechanisms are affected by potential information leakage from bidders’ decisions to participate in them within the independent private values setting. We apply the concept of ratifiability introduced by Cramton and Palfrey (1995) and show that when the seller uses a second-price auction with participation costs, the standard efficient cartel mechanisms such as preauction knockouts analyzed in the literature will not be ratified by cartel members. A high-value bidder benefits from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from participating in the seller’s auction. |
| Keywords: | Auctions, collusion, ratifiability |
| JEL: | C72 D44 D82 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:scp:wpaper:05-15&r=com |
| By: | Nyström, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper investigates the dynamics of firm entry and exit with a focus on differences between industrial sectors. The paper discusses how entry and exit rates in industrial sectors are affected by previous exit and entry rates. Economic theory presents two different approaches to how entry and exit of firms are interrelated to each other, the multiplier effect and the competition effect. This paper intends to investigate which force that is the predominant one. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC-level, for firms with more than five employees during the period 1991-2000. A dynamic panel data approach as suggested by Anderson and Hsio (1981) and Arellano and Bond (1991) are used in estimating the relationships. The empirical results find some evidence of the multiplier effect being the predominant effect explaining entry while competition effects are more important for explaining exit patterns. |
| Keywords: | Entry; exit; dynamic panel data |
| JEL: | C33 L10 |
| Date: | 2005–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0028&r=com |