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on Industrial Competition |
| By: | Giorgio Gobbi (Economics Research Department, Bank of Italy); Francesca Lotti (Economics Research Department, Bank of Italy) |
| Abstract: | During the last decades there has been a widespread relaxation of legal entry barriers into the banking industry, with potential benefits for financial integration and competition. Obstacles to banks' geographical and business expansion have been removed and branching has been substantially liberalized. This paper analyzes the determinants of entry decisions into local credit markets using a unique data set before and after deregulation of the Italian banking industry. We estimate an entry model à la Poisson and find evidence that spreads between loan and deposit rates drive entry only for newly chartered banks, but does not affect the decision to open branches of banks operating in other markets. Branching by outside banks is instead positively correlated with business opportunities in the provision of financial services which do not require the acquisition of substantial proprietary information. Both these results are consistent with the hypothesis that in credit markets incumbents have an informational advantage over new entrants. |
| Keywords: | Entry, deregulation, informational barriers, count data, overdispersion |
| JEL: | G21 L22 C25 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_535_04&r=com |
| By: | Tina Heubeck (University of Hamburg, Germany) |
| Abstract: | This paper introduces the theory of complementarities to the selling of broadcasting rights in team sports in two ways. Firstly, from a legal point of view such rights should not be centrally sold by the league or the association in order to comply with antitrust law because the league as the only seller demands monopoly prices. However, the problem cannot be solved by simply prohibiting collective selling. Using a variation of Cournot's model we show that the price of a single game is higher if sold individually by the participating clubs compared to collective selling by the league. Secondly, as consumers regard games either as complements or as substitutes, demand for simultaneously played games is interdependent. We use the solutions employed in deciding about the pooling of patents to make a general suggestion. |
| Keywords: | sports, broadcasting rights, complementarities, antitrust law, |
| JEL: | D23 K21 L43 L13 |
| URL: | http://d.repec.org/n?u=RePEc:bep:dewple:2004-1-1091&r=com |
| By: | Bergman, Mats A. (Department of Economics, Södertörn University College) |
| 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’s 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 costs in equal proportions between the participants. Under duopoly, (and no entry) a fixed division of central costs will yield lower prices. |
| Keywords: | Two-sided markets; card payments; payment systems; acquiring; issuing; market structure |
| JEL: | G21 L11 L44 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0185&r=com |
| By: | Pierre M. Picard; Eric Toulemonde |
| Abstract: | In the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that the cost structure and workers's rents can also explain excess entry. |
| Keywords: | monopolistic competition; product diversity |
| JEL: | D43 J5 L13 L16 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:05.02&r=com |
| By: | Robert S. Pindyck |
| Abstract: | Sunk costs play a central role in antitrust economics, but are often misunderstood and mismeasured. I will try to clarify some of the conceptual and empirical issues related to sunk costs, and explain their implications for antitrust analysis. I will be particularly concerned with the role of uncertainty. When market conditions evolve unpredictably (as they almost always do), firms incur an opportunity cost when they invest in new capital, because they give up the option to wait for the arrival of new information about the likely returns from the investment. This option value is a sunk cost, and is just as relevant for antitrust analysis as the direct cost of a machine or a factory. |
| JEL: | L40 L10 D43 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11430&r=com |
| By: | John A. Rizzo; Richard Zeckhauser |
| Abstract: | Generic drug utilization has risen dramatically, from 19% of scrips in 1984 to 47% in 2001, thus bringing significant direct dollar savings. Generic drug use may also yield indirect savings if it lowers the average price of those brand-name drugs that are still purchased. Prior work indicates - and we confirm - that generic competition does not induce brand-name producers to lower prices. However, consumer choices between generic and brand-name drugs could affect the average price of those brand-name drugs that are purchased. We use nationally representative panel data on drug utilization and costs for the years 1996-2001 to examine how the share of an individual's prescriptions filled by generics affects his average out-of-pocket cost for brand-name drugs. Our principal finding is that a higher generic scrip share lowers average brand-name prices to consumers, presumably because consumers are more likely to substitute generics when the price gap is great. This effect is substantial: a 10% increase in the consumer's generic scrip share is associated with a 15.6% decline in the average price he pays for brand-name drugs. |
| JEL: | I11 D12 D40 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11431&r=com |
| By: | Wolfgang Sofka (ZEW Mannheim); Tobias Schmidt (ZEW Mannheim) |
| Abstract: | There appears to be an ambivalent dimension in innovation strategies: timing. When is an innovation ready for the market or when is the market ready for the innovation? This paper empirically investigates the determinants of a firm’s decision to become a first mover or a follower in innovation strategies. Much of theoretical and empirical work has focused on whether first mover strategies pay off or not. Here we take a different approach by analysing the determinants that lead companies to opt for either a first mover or a follower strategy. One of this paper’s major goals is to distinguish between firm and industry specific effects on this particular strategic choice. We estimate our model using the most recent data from the German innovation survey of 2003. This dataset allows us to identify deliberate followers rather than outstripped first movers. One of our main findings is that firms choosing a first mover strategy operate in industries with intensive knowledge exchange and further leverage this advantage through excellent internal absorptive capacities. Followers, though, compete by way of their operational excellence for streamlining processes and cutting costs. Hence, we argue that neither of these two innovation strategies is per se superior to the other. |
| Keywords: | innovation strategy, first mover, bivariat probit |
| JEL: | L10 O32 |
| Date: | 2005–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0506010&r=com |
| By: | isamu matsukawa (musashi university) |
| Abstract: | This paper conducts a welfare analysis of a two-part tariff that is applied to the congestion pricing of inputs supplied by a natural monopolist with increasing returns to scale to competitive firms that require an input in a fixed proportion to output. Congestion pricing of inputs is optimal for both the welfare-maximizing regulator and the profit-maximizing monopolist if it is applied in the form of a uniform price for the input. However, a two-part tariff for the congestion pricing of inputs is optimal if competition in the downstream market is imperfect or if there is demand uncertainty in the market. |
| Keywords: | two-part tariff |
| JEL: | L |
| Date: | 2005–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0506012&r=com |
| By: | Juan M.C. Larrosa (CONICET-Universidad Nacional del Sur) |
| Abstract: | Non cooperative network-formation games in oligopolies analyze the optimal connection structure that emerges when linking represent the appropriation of cost-reducing one-way externalities. These models reflect situations where one firm access to another firm’s (public or private) information and this last cannot refuse it. What would happen if one firm can move first? A classical model of exogenous Stackelberg leader is developed and first-mover advantages are observed. |
| Keywords: | Keywords: non cooperative games, network formation strategies, Stackelberg equilibrium. |
| JEL: | C70 D43 L13 |
| Date: | 2005–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0506013&r=com |
| By: | Andreea Cosnita (EUREQua); Jean-Philippe Tropeano (EUREQua) |
| Abstract: | This paper aims to contribute to the normative economic analysis of mergers by taking into account the possible efficiency gains for the design of structural merger remedies. We show that a larger asset transfer should be requested from a less efficient merged firm than from a more efficient one, wich conforts the proportionality principle advocated by competition policy practitioners. However, since cost savings are private information of merging firms, the Competition Authority will require them to reveal their efficiency gains, so as to tailor the optimal remedy. We propose a revelation mechanism combining the use of divestitures with the regulation of asset sale prices. We discuss the opportunity of such an instrument, and argue that in practice Competition Authorities might be entiled to infer a lot from the sale price of divestitures. |
| Keywords: | Merger control, structural merger remedies, asymmetric information. |
| JEL: | D82 L41 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:v05047&r=com |
| By: | Thomas C. Buchmueller |
| Abstract: | We use data from several national employer surveys conducted between the late 1980s and the mid-1990s to investigate the effect of state-level underwriting reforms on HMO penetration in the small-group health insurance market. We identify reform effects by exploiting cross-state variation in the timing and content of reform legislation and by using mid-sized and large employers, which were not affected by the legislation, as within-state control groups. While it is difficult to disentangle the effect of state reforms from other factors affecting HMO penetration in the small group markets, the results suggest a positive relationship between insurance market regulations and HMO penetration. |
| JEL: | I10 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11446&r=com |
| By: | Ping Lin; Kamal Saggi |
| Abstract: | This paper develops a two-tier oligopoly model in which the entry of a multinational firm results in technology transfer to its local suppliers and also impacts the degree of backward linkages in the local industry. The model endogenizes the multinational’s choice between anonymous market interaction with its suppliers and contractual relationships with them under which the multinational transfer technology to its suppliers who in turn agree to serve the multinational exclusively. The multinational’s entry under an exclusive contract has a de-linking e.ect that can reduce the degree of competition among suppliers thereby leading to a decline in the level of backward linkages and local welfare. With its emphasis on the supply-side e.ects of the multinational’s entry on local industry, this paper complements existing studies of backward linkages that focus more on demand-side e.ects. |
| Keywords: | Multinational Firms, Backward Linkages, Vertical Technology Transfer, Exclusivity |
| JEL: | F23 F12 O19 O14 L13 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1250&r=com |
| By: | Ulf Hansen (University of Bayreuth) |
| Abstract: | This paper is about the efficiency of the consequences of a termination of long-term contracts, in the case that the terminated party has made specific investment. After introducing the investment protection in the United States, in Germany and in Austria, it will be shown which restrictions regarding the type of investment, the type of termination and the form of contract are required from an economic perspective to discuss the varieties of investment protection. On this basis, an economic analysis will show that the legal design which generates a valid termination and the claim for the terminated party to be compensated corresponding to its positive interest is the efficient one compared to the other legal and contractual possibilities. On the ground of this insight, the introduced legal systems will be critically discussed with regard to efficiency. |
| URL: | http://d.repec.org/n?u=RePEc:bep:dewple:2004-1-1112&r=com |