nep-com New Economics Papers
on Industrial Competition
Issue of 2005‒10‒22
23 papers chosen by
Russell Pittman
US Department of Justice

  1. John Bates Clark on Trusts: New Light from the Columbia Archives By Luca Fiorito; John F. Henry
  3. Derivative Market Competition: OTC Versus Organized Derivative Exchanges By Jens Nystedt
  4. A Strategic Analysis of Competition Between Open Source and Proprietary Software By Ravi Sen
  5. Competition and Efficiency in Banking: Behavioral Evidence from Ghana By Johan Mathisen; Thierry D. Buchs
  6. Product Market Regulation and the Benefits of Wage Moderation By Marcello M. Estevão
  7. Domestic Competition Spurs Exports: The Indian Example By Tushar Poddar
  8. Trade and Strategic Regulatory Bias in Monopolistic Industries. By T. Huw Edwards
  9. Anti-Unfair Competition Law and Anti-Trust Law: A Continental Conundrum? By Hanns Ullrich
  10. Does Third Degree Price Discrimination Reduce Social Welfare? By Debashis Pal; Victor Kaftal
  11. Product Market Competition, R&D Effort and Economic Growth By Alberto Bucci
  12. Pre-Auction Offers in Asymmetric First-Price and Second-Price Auctions By René Kirkegaard; Per Baltzer Overgaard
  13. Competition in Indian Banking By A. Prasad; Saibal Ghosh
  14. Thalomide, BSE and the Single Market: A Historical-Institutionalist Approach to Regulatory Regimes in the European Union By Sebastian Krapohl
  15. Bidder Participation and Information in Currency Auctions By Rafael Romeu; Lawrence Ausubel
  16. Banking Competition, Risk, and Regulation By Wilko Bolt; Alexander F. Tieman
  17. Competition and Well-Being By Jordi Brandts; Arno Riedl; Frans van Winden
  18. Les hydrocarbures russes : une industrie en quête de modèle By Catherine Locatelli
  19. Product Market Regulation and Macroeconomic Performance: A Review of Cross Country Evidence By Fabio Schiantarelli
  20. Explaining Efficiency Differences Among Large German and Austrian Banks By David Hauner
  21. Bank Consolidation and Performance: The Argentine Experience By Pablo Druck; Raul Susmel; Ritu Basu; David Marston
  22. Outward R&D and Knowledge Spillovers: Evidence Using Patent Citations By Ioana Popovici
  23. The Knowledge Spillover Theory of Entrepreneurship By Zoltan J. Acs; David B. Audretsch; Pontus Braunerhjelm; Bo Carlsson

  1. By: Luca Fiorito; John F. Henry
    Abstract: The paper sheds new light on John Bates Clark’s mature position on the “trust” issue. Access to previously unpublished 1911 testimony before the Interstate Commerce Committee of the U.S. Senate, it is shown that, although Clark relied generally on competitive forces to keep monopoly power in check, following the Standard Oil and American Tobacco cases of that year, he lost considerable faith in the power of his concept of “potential competition,” or latent competition that may or may not be realized. What he advocates here is government promotion of actual competition, largely through the dissolution of the “perilous” trusts and the development of a common pricing policy where all producers face the same price regimes in both the output and input markets. What is desired as an outcome is the promotion of what Clark terms “tolerant competition.” Tolerant competition is not the perfect competition of the neoclassical model, nor the rough-andready competition of the pre-1870 era. Rather, it is a live-and-let-live form of competition where big firms and small firms face the same pricing conditions and only efficiency determines the profit outcome.
    JEL: B13 B31
    Date: 2005–09
  2. By: Peter W. De Langen (Erasmus University); Athanasios A. Pallis (University of the Aegean)
    Abstract: Intra-port competition is widely regarded as beneficial, for the competitiveness of ports, for local and national economies and for consumers and exporting industries. The aim of the paper is to analyse the benefits resulting from the presence of intra-port competition. Even though this issue has been addressed before, a thorough and complete overview of the effects of intra-port competition, enabling conditions for intra-port competition and policies in case of lacking intra-port competition are absent. The paper presents first a short overview of previous studies dealing with intra-port competition. Second, it discusses the two main arguments underlying the benefits of intra-port competition. In this context, attention is given to the relation between intra-port and inter-port competition. Third, the paper examines the conditions under which these arguments are valid and intra-port competition can be introduced. Possible policy responses to limited or absent intra-port competition are discussed in this section as well. Fourth, the need to introduce effects of intra-port competition in port modelling is briefly. Finally, the paper presents empirical evidence of the effects of intra-port competition.
    Keywords: ports, intra-port competition, regulation, port policies
    JEL: L
    Date: 2005–10–17
  3. By: Jens Nystedt
    Abstract: Recent regulatory initiatives in the United States have again raised the issue of a ''level regulatory and supervisory playing field'' and the degree of competition globally between over-the-counter (OTC) derivatives and organized derivative exchange (ODE) markets. This paper models some important aspects of how an ODE market interrelates with the OTC markets. It analyzes various ways in which an ODE market can respond to competition from the OTC markets and considers whether ODE markets would actually benefit from a more level playing field. Among other factors, such as different transaction costs, different abilities to mitigate credit risk play a significant role in determining the degree of competition between the two types of markets. This implies that a potentially important service ODE markets can provide OTC market participants is to extend clearing services to them. Such services would allow the OTC markets to focus more on providing less competitive contracts/innovations and instead customize its contracts to specific investors' risk preferences and needs.
    Keywords: Securities markets , United States , Securities regulations , Exchange markets , Competition , Economic models ,
    Date: 2004–04–22
  4. By: Ravi Sen (Texas A&M University)
    Abstract: This paper takes an analytical approach to identify the conditions under which freely available open source software (OSS) and/or the commercial version of the same (OSS-SS) will adversely affect the market position of proprietary software (PS), and suggests some strategic steps that the PS vendor can take in order to compete successfully. For example, we find that in software markets characterized by low network benefits and OSS-SS with low usability (relative to PS), open source software will have the dominant market share. Interestingly, in these markets the profitability of PS vendor, when the OSS-SS is also present in the market, is higher than its profitability, when the OSS-SS is absent from the software market. In software markets characterized by low network benefits and OSS-SS with high usability, PS will dominate the market in terms of market share. It can maintain its domination by actively participating in OSS projects and ensuring that OSS is as usable as OSS- SS. In software markets characterized by high network benefits and OSS- SS with low usability (relative to PS), we should expect to see the open source software dominating this market in future. However, PS vendors can effectively compete by ensuring that PS is more usable than OSS-SS and OSS. Finally, in software markets characterized by high network benefits and OSS-SS with high usability, PS faces the maximum threat since open source software will dominate the market in terms of market share. Furthermore, the equilibrium price that the PS can charge will not result in positive profits, thus ensuring the exit of PS vendors from the software markets. However, we have yet to see a commercial version of open source in this software category that is as usable as the PS. Therefore, we have not observed the exit of PS vendors from this software segment.
    Keywords: Open source software, software market, software competition, economics of open source, commercial open source, FLOSS.
    JEL: L
    Date: 2005–10–17
  5. By: Johan Mathisen; Thierry D. Buchs
    Abstract: This paper assesses the degree of bank competition and discusses efficiency with regard to banks' financial intermediation in Ghana. By applying panel data to variables derived from a theoretical model, we find evidence for a noncompetitive market structure in the Ghanaian banking system, which may be hampering financial intermediation. We argue that the structure, as well as the other market characteristics, constitutes an indirect barrier to entry thereby shielding the large profits in the Ghanaian banking system.
    Keywords: Competition , Banking , Ghana , Economic models ,
    Date: 2005–02–03
  6. By: Marcello M. Estevão
    Abstract: Euro-area real wages have decelerated sharply in the last 20 years, but this has not yet translated into visibly lower unemployment or faster growth. Weak output growth after such a cost shock is somewhat puzzling and has led some to question the benefits of wage moderation. By isolating structural from cyclical factors in a panel of industrial countries, I show that structurally slower real wage growth, that is, "wage moderation," does raise output growth and lower unemployment rates. However, I show that the impact on both variables depends crucially on product market regulation: weaker competition and barriers to entry mute the growth effects of structural real wage changes by allowing incumbent firms to appropriate larger rents. In this context, overly regulated product markets in the euro area are undermining the effects of labor market reforms on output and employment.
    Date: 2005–10–05
  7. By: Tushar Poddar
    Abstract: India's exports nearly tripled in the 1990s. Decomposing export growth shows that it has been driven by incumbent firms rather than the entry of new firms. By using a new panel on Indian firms and estimating a dynamic discrete-choice model of the firm's decision to export, we find evidence that economic liberalization has led to greater domestic competition, spurring firm efficiency and increasing Indian firms' competitiveness and ability to export. We show that export growth has been an outcome of local firm innovation which has come about due to increased competitive pressure from FDI entry.
    Keywords: Competition , Exports , India , Trade , Economic models ,
    Date: 2004–09–27
  8. By: T. Huw Edwards (Loughborough University)
    Abstract: Regulatory standards, such as on health and safety, may be subject to strategic bias when a country engages in trade. Where regulation is to correct an undersupply of quality by a monopolistic industry, if regulators do not cooperate and …rms can vary standards, there will be a tendency to strategic overregulation, which leads to excessive, rather than inadequate trade. When there is a mixture of horizontal and vertical quality regulations, the profit-shifting motive for protection is less than the previous literature suggests. In this case, contrary to previous findings, mutual recognition agreements lead to underregulation.
    Keywords: Trade, oligopoly, regulation, standards, harmonisation.
    JEL: F13 L13 L51
    Date: 2004–09
  9. By: Hanns Ullrich
    Abstract: In the European Union the relationship between anti-trust law and the law against unfair practices in competition raises not only issues of how to properly delimit the scope of application of the rules of both bodies of law, but also of how to divide the exercise of legislative authority over these matters between the Community and its Member States , and of how to deal with divergences existing between the various national laws in both areas. As far as national anti-trust law is concerned , primacy of Community law, as established by Reg.1/2003, will solve the conflicts, but it cannot extend, and the Regulation expressly does not extend such primacy to national laws against unfair competition, thus leaving room for overlap and conflicts. However, it is much less the risk of direct or – more likely – indirect conflicts which needs to be examined, than the impact which the law against unfair business practices may have on the overall operation of competition in the Community . It is with a view to this intrinsic interdependency between the law against restrictive practices and the law against unfair practices that this paper examines both the development of Community anti-trust law and of harmonization of national unfair competition laws. The point is made that , on the one hand, the Community seeks to reinforce the competitive process in the market place even through consumer-related unfair competition law in that, by way of harmonization of the law, it essentially imposes upon Member States the concept of a strictly information-reliant protection of consumers ,and, on the other ,that ,as regards conduct in pure business-relationships, the Community, by a subsidiarity approach, leaves Member States much room to regulate “ competition on the merits “as they see the merits of particular business practices. In concluding, it is argued that such reliance on regulatory competition might well be used to counterbalance a one-dimensional welfare understanding of Community anti-trust law by more freedom oriented concepts of fairness in competition.
    Keywords: economic law; free movement; harmonisation; Single Market; competition policy
    Date: 2005–02–01
  10. By: Debashis Pal; Victor Kaftal
    Abstract: We analyze the welfare impact of monopolistic third degree price discrimination when all markets are not necessarily served by uniform pricing. We consider n markets with linear demand curves. Each demand is characterized by the price intercept of the demand curve and by the size of the market as measured by the area under the demand curve. Based on these two exogenous parameters, we (i) establish the necessary and su¢ cient conditions to determine the number of markets to be served under uniform pricing, (ii) derive the necessary and su¢ cient conditions to determine the direction of the welfare change under third degree price discrimination, (iii) determine minimally su¢ cient conditions for all markets being served under uniform pricing, involving either the market sizes or the price intercepts of demands alone, and (iv) derive minimally su¢ cient conditions, involving market sizes alone, for third degree price discrimination to increase welfare when all markets are not served by uniform pricing.
    Date: 2005
  11. By: Alberto Bucci
    Abstract: Using an integrated model of purposive R&D activity and human capital accumulation, this paper analyses the joint impact that product market competition may exert on the sectoral distribution of skills and economic growth. In a framework where innovation takes place through an R&D technology combining with constant returns to scale human capital and the existing stock of disembodied knowledge and where individuals may increase their own level of skills without employing technological capital, we find that economic growth is solely driven by human capital accumulation and is independent of knowledge spillovers from innovative activity. Product market power always positively affects R&D effort, whereas its impact on growth can be either positive or lacking depending on the way the structure of the economy is modelled. Accordingly, the paper accounts for the empirical evidence of a rising amount of resources invested in R&D and a simultaneous approximate constancy of per capita growth in the U.S. and other major industrialised countries in the second half of the last century.
    Keywords: endogenous growth, R&D investment, human capital, product market competition,
    Date: 2005–08–26
  12. By: René Kirkegaard (Brock University); Per Baltzer Overgaard (School of Economics and Management, University of Aarhus)
    Abstract: We consider “must-sell” auctions with asymmetric buyers. First, we study auctions with two asymmetric buyers, where the distribution of valuations of the strong buyer is “stretched” relative to that of the weak buyer. Then, it is known that inefficient first-price auctions are more profitable for the seller than efficient second-price auctions. This is because the former favor the weak buyer. However, we show that the seller can do one better by augmenting the first-price auction by a pre-auction offer made exclusively to the strong buyer. Should the strong buyer reject the offer, the object is simply sold in an ordinary first-price auction. The result is driven by the fact that the unmodified first-price auction is too favorable to the weak buyer, and that the pre-auction offer allows some correction of this to the benefit of the seller. Secondly, we show quite generally that pre-auction offers never increase the profitability of second-price auctions, since they introduce the wrong kind of favoritism from the perspective of seller profits.
    Keywords: first-price and second-price auctions; asymmetric bidders; pre-auction offers
    JEL: D44 D82
    Date: 2005–10
  13. By: A. Prasad; Saibal Ghosh
    Abstract: It is widely perceived that competition in the Indian banking sector has increased since the inception of the financial sector reforms in 1992. Using annual data on scheduled commercial banks for the period 1996-2004, the paper evaluates the validity of this claim in the Indian context. The empirical evidence reveals that the Indian banking system operates under competitive conditions and earns revenues as if under monopolistic competition.
    Keywords: Competition , Banking , India , Bank reforms ,
    Date: 2005–07–28
  14. By: Sebastian Krapohl
    Abstract: ""
    Date: 2005–03–01
  15. By: Rafael Romeu; Lawrence Ausubel
    Abstract: This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior informationgathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.
    Date: 2005–08–19
  16. By: Wilko Bolt; Alexander F. Tieman
    Abstract: In a dynamic theoretical framework, commercial banks compete for customers by setting acceptance criteria for granting loans, taking regulatory requirements into account. By easing its acceptance criteria a bank faces a trade-off between attracting more demand for loans, thus making higher per period profits, and a deterioration of the quality of its loan portfolio, thus tolerating a higher risk of failure. Our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria, and that increased competition in the banking industry leads to riskier bank behavior. In an extension of our basic model, we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator, even though holding equity is more expensive than attracting deposits.
    Keywords: Banking , Competition , Bank regulations , Capital ,
    Date: 2004–02–05
  17. By: Jordi Brandts (Institut d'Anàlisi Econòmica (CSIC), Barcelona); Arno Riedl (University of Maastricht and IZA Bonn); Frans van Winden (Tinbergen Institute and University of Amsterdam)
    Abstract: This paper experimentally studies the effects of competition in an environment where people's actions can not be contractually fixed. We find that, in comparison with no competition, the presence of competition does neither increase efficiency nor does it yield any gains in earnings for the short side of the exchange relation. Moreover, competition has a clearly negative impact on the disposition towards others and on the experienced well-being of those on the long side. Since subjective well-being improves only for those on the short side competition contributes to larger inequalities in experienced well-being. All in all competition does not show up as a positive force in our environment.
    Keywords: competition, happiness, well-being, laboratory experiment, emotions, market interaction
    JEL: A13 C92 D30 J50 M50
    Date: 2005–09
  18. By: Catherine Locatelli (LEPII - Laboratoire d'économie de la production et de l'intégration internationale - - CNRS : FRE2664 - Université Pierre Mendès-France - Grenoble II)
    Abstract: La politique énergétique de la Russie, producteur important de pétrole et de gaz, témoigne d'évolutions majeures notamment dans le domaine des hydrocarbures. La principale d'entre elles réside dans l'évolution du modèle organisationnel qui s'était progressivement mis en place lors des premières années de la transition.
    Keywords: politique énergétique;Russie;industrie pétrolière;industrie gazière;structure d\'organisation
    Date: 2005–10–07
  19. By: Fabio Schiantarelli (Boston College and IZA Bonn)
    Abstract: The main purpose of this paper is to provide a critical overview of the recent empirical contributions that use cross country data to study the effect of product market regulation and reform on a country’s macroeconomic performance. After a brief review of the theoretical literature and of relevant micro-econometric evidence, the paper discusses the main data and methodological issues related to empirical work on this topic. It then critically evaluates the cross country evidence on the effect of product market regulation on mark-ups, firm dynamics, investment, employment, innovation productivity, and output growth. A summary of what we learn from the econometric results concludes the paper.
    Keywords: regulation, product market, performance, productivity, innovation, growth
    JEL: D24 K20 L10 L51 O31 O40 O57
    Date: 2005–10
  20. By: David Hauner
    Abstract: Cost-efficiency, scale efficiency, and productivity change are estimated by data envelopment analysis; and cost-efficiency is regressed on explanatory variables. No evidence is found for average productivity responding to deregulation over the period studied. State-owned banks are found to be more cost-efficient (likely owing to cheaper funds) and cooperative banks to be about as cost-efficient as private banks. Increasing economies of scale but decreasing economies of scope provide rationale for M&As among banks with similar product portfolios. Interbank and capital market funding is found to be more cost-efficient than deposits when the cost of retail networks is controlled for.
    Keywords: Banks , Germany , Austria , Productivity , Economic models ,
    Date: 2004–08–13
  21. By: Pablo Druck; Raul Susmel; Ritu Basu; David Marston
    Abstract: We examine a large panel of more than 100 banks from Argentina to study the effects of bank consolidation on performance between December 1995 and December 2000, a period of heavy bank consolidation and relative calm. Overall, we find a positive and significant effect of bank consolidation on bank performance. Bank returns increase with consolidation, and insolvency risk is reduced. Additionally, the study suggests that mergers and privatizations have a beneficial effect on bank returns. The effects of a bank acquisition on return on equity is, however, negative. Acquisitions do not seem to have any effect on risk-adjusted returns. The study also finds that a bank's insolvency risk is reduced significantly through mergers and privatization and is unrelated to bank acquisitions.
    Keywords: Banking , Argentina , Emerging markets , Bank restructuring , Financial crisis , Privatization , Economic models ,
    Date: 2004–08–24
  22. By: Ioana Popovici (Department of Economics, Florida International University)
    Abstract: FDI is believed to be a conduit of new technologies between countries. Many have studied the cross-border knowledge diffusion due to outward FDI, but this paper is the first to study the advantages of outward FDI for the home country of multinationals conducting R&D abroad. To address this issue, we use patent citations as a proxy for technology spillovers and we bring empirical evidence that supports the hypothesis that a US subsidiary conducting R&D overseas facilitates the flow of knowledge between its host and home countries.
    Keywords: patents, spillovers, R&D, FDI
    JEL: O30 O34 F23
    Date: 2005–10
  23. By: Zoltan J. Acs; David B. Audretsch; Pontus Braunerhjelm; Bo Carlsson
    Abstract: Contemporary theories of entrepreneurship generally focus on the decision-making context of the individual. The recognition of opportunities and the decision to commercialize them is the focal concern. While the prevalent view in the entrepreneurship literature is that opportunities are exogenous, the most prevalent theory of innovation in the economics literature suggests that opportunities are endogenous. This paper bridges the gap between the entrepreneurship and economic literature on opportunity by developing a knowledge spillover theory of entrepreneurship. The basic argument is that knowledge created endogenously via R&D results in knowledge spillovers. Such spillovers give rise to opportunities to be identified and exploited by entrepreneurs. Our results show that there is a strong relationship between knowledge spillovers and new venture creation.
    Keywords: Opportunity, knowledge, entrepreneurship, management science
    JEL: O3 R1 J24 M13
    Date: 2005–10

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