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on Industrial Competition |
| By: | Mark Armstrong (University College London); David Sappington (University of Florida) |
| Abstract: | In many countries throughout the world, regulators are struggling to determine whether and how to introduce competition into regulated industries. This essay examines the complexities involved in the liberalization process. While stressing the importance of case-specific analyses, this essay distinguishes liberalization policies that generally are pro-competitive from corresponding anti-competitive liberalization policies |
| Keywords: | Competition, Regulation, Liberalization |
| JEL: | L |
| Date: | 2005–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0505011&r=com |
| By: | Mark Armstrong (University College London) |
| Abstract: | There are many examples of markets involving two groups of agents who need to interact via 'platforms', and where one group's benefit from joining a platform depends on the number of agents from the other group who join the same platform. This paper presents theoretical models for three variants of such markets: a monopoly platform; a model of competing platforms where each agent must choose to join a single platform; and a model of 'competing bottlenecks', where one group wishes to join all platforms. The main determinants of equilibrium prices are (i) the relative sizes of the cross-group externalities, (ii) whether fees are levied on a lump-sum or per-transaction basis, and (iii) whether a group joins just one platform or joins all platforms. |
| Keywords: | Two-sided markets, network externalities, supermarkets, advertising |
| JEL: | L |
| Date: | 2005–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0505009&r=com |
| By: | Juan-José Ganuza; José S. Penalva Zuasti (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | This paper studies the relationship between the auctioneer's provision of information and the level of competition in private value auctions. We use a general notion of informativeness which allows us to compare the efficient with the (privately) optimal amount of information provided by the auctioneer. We show that it is not optimal for the auctionner to provide the efficient level of information. We also look at the effect of competition as parameterized by the number of participants in the auction. We find that both the optimal and the efficient level of information increase with the number of participants in the auction, and both converge when the number of bidders goes to infinity. |
| Keywords: | Auctions, competition, private values, optimal and efficient provision of information. |
| JEL: | D44 D82 D83 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2005_0503&r=com |
| By: | Dequiedt, V. |
| Abstract: | In a first part, we provide a general approach to mechanism design subject to collusion. It is modeled as a Stackelberg game between the designer and a third-party which organizes collusion among the buyers. In this multi-principal context, the standard "Revelation principle" can be replaced by a "Collusion-proofness Principle" if, and only if, the collusion technology satisfies a transitivity condition. In a second part, we apply this approach to collusion in a private value auction where bidders' types are independent and study the optimal response of the seller to different threats of collusion between the buyers. We show that collusion in the optimal auction is efficient when the third-party can implement monetary transfers as well as when it can implement monetary transfers and reallocations of the goods. |
| Keywords: | COLLUSION PROOFNESS; MULTI PRINCIPAL; OPTIMAL CONTRACT |
| JEL: | D44 D82 L41 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:rea:gaelwp:200402&r=com |
| By: | Claude, D’ASPREMONT; Rodolphe, DOS SANTOS FERREIRA |
| Abstract: | In applying the common agency framework to the context of an oligopolistic industry, we want to go beyond the classical dichotomy between Cournot and Bertrand competition. We define two games, the oligopolistic game and the corresponding concept of oligopolistic equilibrium, and an associated auxiliary game that can be interpreted as a common agency game and that has the same set of equilibria. The parameterization of the set of (potential) equilibria in terms of competitive thoughness is derived from the first order conditions of the auxiliary game. The enforceability of monopolistic competition, of price and quantity competition, and of collusion is examined in this framework. We then describe the (reduced) set of equilibria one would obtain, first in the non-intrinsic case and then in the case where a global approach would be adopted instead of partial equilibrium approach. Finally, we illustrate the use of the concept of oligopolistic equilibrium and of the corresponding parameterization by referring to the standard case of symmetric quadratic utility. |
| Date: | 2005–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005018&r=com |
| By: | Arthur Zillante (ICES, George Mason University) |
| Abstract: | An oft-neglected pattern of behavior occurs when firms time the release of their products so that they are not released on the same date. The practice is potentially collusive, so there may be legitimate antitrust concerns. This paper presents a model of this behavior, the alternating periods monopoly (APM). A comparison of the APM with other sustainable methods of collusion shows the conditions under which the APM is preferred. I develop an empirical test to detect the APM, and use data from the baseball card industry to investigate the possible use of an APM. |
| Keywords: | Noncooperative strategies, alternating periods monopoly, duration analysis |
| JEL: | L |
| Date: | 2005–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0505008&r=com |
| By: | Eric van Damme |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0526&r=com |
| By: | Denis, CLAUDE; Jean, HINDRIKS |
| Abstract: | In this paper we consider mixed oligopoly markets for differentiated goods where private and public firms compete either in prices or quantities. We then study the welfare effect of privatization interpreted as partial strategic delegation of the public firm to a private manager with profit concern. It is shown that partial privatization improves welfare with quantity competion when goods are subsitutes, and with price competition when goods are complements. However full privatization (complete delegation to private manager) can never be optimal. It is also shown that the public firm can make more profit than the private firm in equilibrium, and that this possibility is more likely under quantity competition. Turning to market regulation policy, we find : (i) that public and private firms should be taxed the same; and (ii) that price regulation is better than quantity regulation. |
| Date: | 2005–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005016&r=com |
| By: | Bettendorf, L.; Geest, S.A. van der; Kuper, G.H. (Groningen University) |
| Abstract: | This paper analyzes adjustments in the Dutch retail gasoline prices. We estimate an error correction model on changes in the daily retail price for gasoline (taxes excluded) for the period 1996-2004 taking care of volatility clustering by estimating an EGARCH model. It turns out the volatility process is asymmetrical: an unexpected increase in the producer price has a larger effect on the variance of the producer price than an unexpected decrease. We do not find evidence for amount asymmetry, either for the long run or for the short run. However, there is a faster reaction to upward changes in spot prices than to downward changes in spot prices. This implies timing or pattern asymmetry. This asymmetry starts three days after the change in the spot price and lasts for four days. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugccs:200503&r=com |
| By: | Martin Jørgensen |
| Abstract: | This paper discusses ways of strengthening the competitive environment in order to help boost productivity performance in various sectors of the Danish economy. It looks at a number of indicators of the strength of competition - including price levels, industrial concentration and product market regulation - and it discusses the appropriateness of the competition legislation framework. The paper then focuses on the large public sector, which has been slow to open up to competition, partly because of regulatory restrictions but also because some local governments are too small to handle tenders and provide an attractive market for private providers. The paper also looks at the process of liberalising network industries and at various regulations that still impede effective competition in a number of other sectors, including construction, housing, distribution and professional services. <p> Dynamiser la croissance en stimulant la concurrence au Danemark <p> Ce document examine les moyens de renforcer le cadre concurrentiel pour stimuler la productivité dans divers secteurs de l'économie du Danemark. Il passe en revue un certain nombre d'indicateurs de la vigueur de la concurrence - notamment le niveau des prix, la concentration industrielle et la réglementation des marchés de produits - et évalue l'adéquation du cadre législatif de la concurrence. L'analyse se porte ensuite sur le vaste secteur public, qui a tardé à s'ouvrir à la concurrence, du fait de restrictions réglementaires mais aussi parce que certaines collectivités locales sont trop petites pour gérer des appels d'offres et offrir un marché attractif à des prestataires privés. Ce document examine aussi le processus de libéralisation des industries de réseau ainsi que différentes réglementations qui font encore obstacle à une concurrence efficace dans plusieurs autres secteurs, dont la construction, le logement, la distribution et les services professionnels. |
| Keywords: | Denmark;competition; regulation; product markets; network industries; retail distribution; construction; public sector; competitive neutrality; public procurement; privatisation |
| JEL: | H4 K21 L1 L32 L33 L41 L43 L44 L8 L9 O52 |
| Date: | 2005–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:oed:oecdec:431&r=com |
| By: | Kwon, Chul-Woo; Lapan, Harvey E. |
| Abstract: | This paper considers competition between two multinationals (U, J) who compete in a third market (K). The multinationals have similar cost structures, but differ in that J comes from a country that is “culturally similar” to K, and hence produces products that match more closely the preferences of K residents. This similarity gives J an advantage in K’s market and, if only one firm may enter, J can earn higher profits. However, we show: (i)K may benefit more from the entry of the dissimilar firm (U), and (ii)in a strategic competition between the two firms, the cultural similarity may be a strategic disadvantage. |
| JEL: | F2 L1 |
| Date: | 2005–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12361&r=com |
| By: | Coucke, Kristien |
| Abstract: | The unequal situation of large global firms with extensive networks and smaller domestic firms has created a dual structure in many industries. In this paper we examine the competitive position of domestic single-plant firms under growing rivalry of global companies that source abroad and flexibly coordinate production activities within a multinational network. Growing rivalry is modelled as a decrease in sourcing costs for multinational firms. We separate a direct and an indirect effect – i.e. competitive strategic effect- of a lower sourcing cost on the production decision of multinational and domestic firms. We show how cost characteristics of domestic firms determine the impact of these effects. We theoretically find that, ceteris paribus, output flexible firms will be most vulnerable and exit first from the market. Product differentiation is found to reduce the strategic effect of global sourcing by MNE’s on the competitive position of domestic firms. |
| Keywords: | Sourcing, multinational firms, flexibility, exit Note |
| Date: | 2005–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2005-7&r=com |
| By: | Jean-Michel Glachant; Dominique Finon |
| Abstract: | We examine what kind of competitive fringe has been built in France around the State owned incumbent without destroying it or significantly weakening its dominant position; what impacts has this particular reform process on the market in which the incumbent monopolist is still overly dominant; and what more can be done to strengthen the opening of the market while staying in this typical French policy framework (no industrial restructuring and no forced divestiture by the monopolist). We wonder if a larger window of opportunity will open up at some later date for contesting the position of the monopolist, especially when investment in generation resumes. |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0524&r=com |
| By: | Urs Meister (University of Zurich) |
| Abstract: | The periodical re-auction of a water monopoly concession causes the danger of underinvestment. If the life-time of specific assets such as water pipes exceeds the contract length and transferring the ownership of assets is difficult, the incumbent franchisee faces a hold-up problem. Using a simple auction model that considers the specifics of the piped water sector this paper shows that investment incentives may vary depending on the applied auction scheme. The model is designed as a two stage game, where the franchisee decides about investment on the first and competes with a potential market entrant on the second stage. Investment tends to be higher in sealed bid auctions than in an English auction, since the incumbent benefits from an information advantage. Additionally investment may vary in a first- and a second-price sealed bid auction depending on several factors such as costs or effectiveness of investment. The analysis is extended by a vertical separation. |
| Keywords: | Water, Networks, Franchise Bidding, Investment |
| JEL: | L95 L43 D21 Q25 |
| Date: | 2005–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0505012&r=com |