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on Industrial Competition |
| By: | Elena Cefis; Stephanie Rosenkranz; Utz Weitzel |
| Abstract: | Using a game theoretical model on firms' simultaneous investments in product and process innovation, we deduct and empirically test hypotheses on the optimal R&D portfolio, investment, performance, and dynamic efficiency of R&D for acquisitions and in independently competing firms. We use Community Innovation Survey data on Italian manufacturing firms. Theoretical and empirical results show that firms involved in acquisitions invest in different R&D portfolios and invest at least as much in aggregate R&D as independent firms. The empirical results do not support our hypothesis on dynamic efficiency since acquisitions lead to inferior R&D performance. |
| Keywords: | Mergers and Acquisitions, Innovation, Dynamic Efficiency, Cost Reduction, Product Differentiation |
| JEL: | C72 L1 L13 O32 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0528&r=com |
| By: | Volker Nocke (Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, USA); Martin Peitz (Department of Economics, University of Mannheim, D-68131 Mannheim, Germany); Konrad Stahl (Department of Economics, University of Mannheim, D-68131 Mannheim, Germany) |
| Abstract: | We develop a general theoretical framework of trade on a platform on which buyers and sellers interact. The platform may be owned by a single large, or many small independent or vertically integrated intermediaries. We provide a positive and normative analysis of the impact of platform ownership structure on platform size. The strength of network effects is important in the ranking of ownership structures by induced platform size and welfare. While vertical integration may be welfare-enhancing if network effects are weak, monopoly platform ownership is socially preferred if they are strong. These are also the ownership structures likely to emerge. |
| Keywords: | Two-Sided Markets, Network Effects, Intermediation, Product Diversity |
| JEL: | L10 D40 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:16&r=com |
| By: | Joseph A. Clougherty (Wissenschaftszentrum Berlin (WZB), Research Unit: MP-CIC Reichpietschufer 50, D-10785 Berlin, Germany) |
| Abstract: | The domestic airline merger phenomenon of the late 1980s and early 1990s sparked a great deal of Industrial Organization literature; yet, that literature neglected non-US merger activity and the potential for international competitive incentives. Using an International Business perspective to complement a primarily Industrial Organization analysis, I argue that factoring international competitive gains helps explain the domestic airline merger phenomenon. A Cournot model of airline competition illustrates the international incentives behind integrating domestic with international routes and behind acquiring domestic competitors. Further, comprehensive panel data tests also support large domestic networks and actual mergers improving the international competitiveness of airlines. |
| Keywords: | airline-mergers, imperfect-competition, international-determinants |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:19&r=com |
| By: | Georg von Graevenitz (Ludwig-Maximilians-Universität München, University of Munich, Kaulbachstr. 45, D-80539 Munich, Germany) |
| Abstract: | I develop a model of R&D cooperation with uncertain research outcomes. In this model asymmetric outcomes of R&D competition emerge naturally. Therefore ex-ante and ex-post R&D cooperation can be studied as alternatives for firms. Using this model I compare welfare losses under ex-ante and ex-post R&D cooperation as the degree of product market competition varies. It emerges that the relative size of these welfare losses is monotonically related to the degree of product market competition and the degree of technological opportunity. The implications of these results for the interaction of competition policy and innovation policy are discussed. |
| Keywords: | Competition Policy, Innovation Policy, R&D Cooperation, Licensing, Research Joint Venture, Oligopolistic R&D |
| JEL: | L13 L49 O31 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:35&r=com |
| By: | Simon Loertscher |
| Abstract: | This paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers. The key finding is that the unique perfect equilibrium outcome is Cournot if capacity is costly and rationing efficient. This result is interesting for two main reasons: It generalizes Kreps and Scheinkman (1983) to an arbitrary number of market makers, and it contrasts with Stahl (1988) and the broader literature on market making, such as Gehrig (1993), Fingleton (1997) and Rust and Hall (2003), where due to the absence of capacity constraints on the input market the Bertrand paradox typically prevails. |
| Keywords: | Market making; capacity constraints; price competition |
| JEL: | C72 D41 D43 L13 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0512&r=com |
| By: | Chris M. Wilson (University of East Anglia) |
| Abstract: | Within a one-shot, duopoly game, we show that firms cannot use false in- store price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson’s (1974) conjecture by showing that ‘middle-order’ monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers due to a second, larger effect that improves consumer information and increases the intensity of price competition. |
| Keywords: | Comparative Price Advertising, Deception, Obfuscation, Cheap Talk |
| JEL: | L10 D43 D83 |
| Date: | 2005–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0510007&r=com |
| By: | Bastian Westbrock |
| Abstract: | Observations of recent mergers and acquisitions (M&A) in the semiconductor and computer industry indicate that activities concentrate on the technology leaders in this market. The author examines the influence of players' heterogeneous product technologies on their involvement in M&A. He provides a rationale for the influence with the help of a case study and a two-stage non cooperative game. The case is about an acquisition wave between suppliers in two semiconductor component markets. Exemplary for the whole industry, acquisition activities concentrated on the technology leader in one of the component markets. Technological heterogeneity is represented within a vertically differentiated product space in the model. |
| Keywords: | semiconductor industry, computer industry, horizontal integration, complementary product, product differentiation |
| JEL: | L11 L13 L63 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0505&r=com |
| By: | Oz Shy (WZB - Social Science Research Center Berlin); Staffan Ringbom (Department of Economics, Swedish School of Economics) |
| Abstract: | We characterize the conditions under which industry-wide agreements on refund policies weaken price competition. We identify the conditions under which joint industry proffit increases with the amount of refunds promised to those consumers who cancel a reservation or return a product. We compare it to similar industry configurations when firms set up shipping and handling charges instead of refunds. Finally, we investigate refund policies under moral hazard. |
| Keywords: | Refunds, Partial refunds, Collusion on refunds, Shipping & handling charges, Moral hazard |
| JEL: | L1 L41 M2 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0001&r=com |
| By: | Simon Loertscher; Gerd Muehlheusser |
| Abstract: | We consider Hotelling location games with global and local players. Global players are active in several markets, while local players act in a single market only. The decisive feature is that global players cannot tailor their product to each market but have to choose a location on the Hotelling line that is valid for all markets in which they are active. Obvious examples include the media industry and politics, where competitors typically compete in several markets with basically the same product. We determine equilibrium configurations for simple specifications of such games. We then show that the presence of \gp s\ tends to induce lower product diversity across markets. Finally, when the number of firms is endogenous, we show how \gp s\ may use their location choice as a preemptive device |
| Keywords: | Hotelling location games; spatial competition; multiple markets; product differentiation; diversity; preemption |
| JEL: | D45 K21 K23 L11 L51 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0511&r=com |
| By: | Roland Strausz (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin, Germany) |
| Abstract: | This paper derives conditions under which reputation enables certifiers to resist capture. These conditions alone have strong implications for the industrial organization of certification markets: 1) Honest certification requires high prices that may even exceed the static monopoly price. 2) Honest certification exhibits economies of scale and constitutes a natural monopoly. 3) Price competition tends to a monopolization. The results derive from a general principle of reputation models that favors concentration. This principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms. |
| Keywords: | certification, collusion, bribery, reputation, natural monopoly |
| JEL: | L15 D82 L11 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:25&r=com |
| By: | Nyström, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper investigates the commonly debated question about innovations and firm age. Are innovations made by incumbent firms, and does innovation therefore constitute a barrier to entry, or is innovation a way for new firms to successfully compete? The paper further investigates the relationship between firm size and innovation. Does innovation constitute a way for small firms to compete or are innovation a large firm phenomenon? In the analysis the paper explicitly distinguishes between product and process innovation. Data from 1997 and 1999 on product and process R&D, firm size and age in the Swedish manufacturing industry is used in the empirical analysis. A multinomial logit-model is used to estimate the probability of performing process and product R&D. The results show that there are complementarities between product and process R&D and very few firms conduct only process R&D. The probability of product R&D and combined product and process R&D is higher for large firms and firms that are older than 80 years. The size and age effects are more pronounced for firms that carry out both process and product R&D. |
| Keywords: | Product; process; R&D; firm size; firm maturity |
| JEL: | L11 O31 O33 |
| Date: | 2005–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0039&r=com |
| By: | stefano comino (Dipartimento di Economia, Università di Trento) |
| Abstract: | In the paper we analyze how the possibility of revealing information to a competitor alters the entry/investment behavior of a first entrant. We show that once it has entered the market, the firm might refrain from making further profitable investments in order to hide information from the competitor. Moreover, we show that before entering the market, the first entrant anticipates that there is a strategic advantage in choosing an initially small scale of entry: in this way it 'commits' itself to revealing the true state of the market with its subsequent decisions and this fact is beneficial since it induces the competitor to postpone entry into market. |
| Keywords: | Entry, Information Externalities, Wait and See, First Entrant, Strategic Behavior |
| JEL: | D82 D83 L11 |
| Date: | 2005–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0510006&r=com |
| By: | Anja Schöttner |
| Abstract: | This paper analyzes a procurement setting with two identical firms and stochastic innovations. In contrast to the previous literature, I show that a procurer who cannot charge entry fees may prefer a fixed-prize tournament to a first-price auction since holding an auction may leave higher rents to firms when the innovation technology is subject to large random factors. |
| Keywords: | innovation contest, auction, tournament, quality |
| JEL: | D44 H57 L15 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2005-041&r=com |
| By: | Stewart, Geoff |
| Abstract: | Innovation, Appropriation and Entrepreneurial Strategy Geoff Stewart Economics Division School of Social Sciences University of Southampton Abstract We analyse the strategy of an entrepreneur seeking to earn a return on a new discovery when faced by an incumbent firm and pool of potential entrants. The entrepreneur may choose to purchase the incumbent without revealing the discovery, enter the market as a competitor, or approach the incumbent with a view to some form of cooperation. Among our findings is that it is the magnitude of the discovery and its susceptibility to appropriation, rather than entry costs, that are the main determinants of whether entry will occur. Also, whilst major discoveries will always be implemented, others might be withheld. JEL classification: D23; D43; L13; O31. |
| Keywords: | Entrepreneur; Property rights; Appropriability; Oligopoly. |
| Date: | 2004–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:0403&r=com |
| By: | Rod Garratt (Department of Economics, University of California Santa Barbara, CA 93106, USA); Thomas Tröger (Department of Economics, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany) |
| Abstract: | In standard auctions with symmetric, independent private value bidders resale creates a role for a speculator—a bidder who is commonly known to have no use value for the good on sale. For second-price and English auctions the efficient value-bidding equilibrium coexists with a continuum of inefficient equilibria in which the speculator wins the auction and makes positive profits. First-price and Dutch auctions have an essentially unique equilibrium, and whether or not the speculator wins the auction and distorts the final allocation depends on the number of bidders, the value distribution, and the discount factor. Speculators do not make profits in first-price or Dutch auctions. |
| Keywords: | standard auctions, speculation, resale, efficiency |
| JEL: | D44 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:42&r=com |
| By: | Klaus Gugler; Dennis C. Mueller; B. Burcin Yurtoglu |
| Abstract: | One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers' shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0515&r=com |
| By: | Matthew Rhodes-Kropf; David T. Robinson |
| Abstract: | Mergers are the mechanisms that redraw the boundaries of the firm. In this paper, we relate incomplete contracts, upon which much of our understanding of firm boundaries is based, to empirical regularities in the market for mergers and acquisitions. We begin by empirically challenging conventional wisdom about mergers and acquisitions: high M/B acquirers typically do not purchase low M/B targets. Instead, mergers typically pair together firms with similar M/B ratios. To show why this occurs, we build a continuous time model of investment and merger activity that combines search, relative scarcity, and asset complementarity. Our model shows that the `like buys like' empirical finding is a natural consequence of a prediction from the property rights theory of the firm; namely, that complementary assets should be placed under common control. A number of new empirical predictions emerge from our analysis. First, if asset complementarity is important, then we should see small differences in the M/B of targets and acquirers. It also predicts that the difference in M/B ratios should increase when discount rates are high and valuations are low. In additional tests, we show that both of these predictions are borne out by the data. Our findings suggest that the incomplete contracts theory of the firm is central to understanding the empirical regularities of the market for mergers and acquisitions. |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0518&r=com |
| By: | Burkhard C. Schipper (Department of Economics, University of Bonn. schipper@uni-bonn.de) |
| Abstract: | We analyze a symmetric n-firm Cournot oligopoly with a heterogeneous population of optimizers and imitators. Imitators mimic the output decision of the most successful firms of the previous round a l`a Vega-Redondo (1997). Optimizers play a myopic best response to the opponents’ previous output. Firms are allowed to make mistakes and deviate from the decision rules with a small probability. Applying stochastic stability analysis, we find that the long run distribution converges to a recurrent set of states in which imitators are better off than are optimizers. This finding appears to be robust even when optimizers are more sophisticated. It suggests that imitators drive optimizers out of the market contradicting a fundamental conjecture by Friedman (1953). |
| Keywords: | profit maximization hypothesis, bounded rationality, learning, Stackelberg |
| JEL: | C72 D21 D43 L13 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:53&r=com |
| By: | Stephanie Rosenkranz; Utz Weitzel |
| Abstract: | We model takeovers as a bargaining process and explain the existence and net effect of target as well as bidder termination fees, subject to bargaining power and outside options. In equilibrium, net termination fees (target minus acquirer fees) are offered by firms with a superior bargaining position in exchange for a greater share of merger synergies. This even holds when the target negotiates with the most efficient bidder and in the absence of bidding-related costs. Using a sample of 1232 U.S. mergers from 1986 to 2003, our theoretical predictions and the concept of net termination fees find empirical support. Net termination fees and premiums are positively correlated, while net fees decrease (increase) in targets' (acquirers') bargaining power, proxied by market capitalization, and increase (decrease) in targets' (acquirers') outside options, proxied inter alia by market-to-book ratios. These results question existing explanations for termination fees and lockup options, like cost compensation, target commitment, agency costs and management entrenchment. They also imply that judicial ruling according to the more lenient business judgement is at least as justified as the application of more restrictive legal standards. |
| Keywords: | mergers and acquisitions, bargaining power, outside option, termination fees, lockup options, stock option agreements |
| JEL: | G34 C78 D44 C71 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0532&r=com |
| By: | Kartin Hussinger (Center for European Economic Research (ZEW), P.O. Box 103443, D-68304 Mannheim, Germany) |
| Abstract: | In the 1990s, patenting schemes changed in many respects: upcoming new technologies accelerated the shift from price competition towards competition based on technical inventions, a worldwide surge in patenting took place, and the 'patent thicket' arose as a consequence of strategic patenting. This study analyzes the importance of patenting versus secrecy as an effective alternative to protect intellectual property in the inventions' market phase. The sales figure with new products is introduced as a new measure for the importance of tools to protect IP among product innovating firms. Focusing on German manufacturing in 2000, it turns out that patents are important to protect intellectual property in the market, whereas secrecy seems to be rather important for inventions that are not commercialized yet. |
| Keywords: | Innovation, Appropriation, Patents, Secrecy |
| JEL: | C34 C35 O33 O34 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:37&r=com |
| By: | Lars Frisell (Sveriges Riksbank); Johan N.M. Lagerlof (Royal Holloway, University of London) |
| Abstract: | A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare -- as well as consumers' -- may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties. |
| Keywords: | Price regulations, price discrimination, incomplete information, cheap talk, Robinson-Patman Act |
| JEL: | D82 L11 L42 |
| Date: | 2005–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0510011&r=com |
| By: | Michael Koetter |
| Abstract: | German banks experienced a merger wave throughout the 1990's. However, the success of bank mergers remains a continuous matter of debate. In this paper we suggest a taxonomy as how to evaluate post-merger performance on the basis of cost efficiency (CE). We categorise mergers a success that fulfill simultaneously two criteria. First, merged institutes must exhibit CE levels above the average of non-merging banks. Second, banks must exhibit CE changes between merger and evaluation year above efficiency changes of non-merging banks. We employ this taxonomy to characterise (successful) mergers in terms of various key-performance and structural indicators and investigate the implications for four prominent policy issues particular to German banking. Our main conclusions are threefold. First, roughly every second merger is a success. Second, the margin of success is narrow, as the CE difference amounts to approximately 1 percentage point. Third, it takes around seven years after a transaction until maximum mean CE differentials materialise. |
| Keywords: | Bank mergers, cost efficiency. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0516&r=com |
| By: | Hendrik Hakenes (MPI for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany); Isabel Schnabel (MPI for Research on Collective Goods, Kurt-Schumacher-Str. 10, D-53113 Bonn, Germany) |
| Abstract: | The explicit or implicit protection of banks through government bail-out policies is a universal phenomenon. We analyze the competitive effects of such policies in two models with different degrees of transparency in the banking sector. Our main result is that the bail-out policy unambiguously leads to higher risk-taking at those banks that do not enjoy a bail-out guarantee. The reason is that the prospect of a bail-out induces the rotected bank to expand, thereby intensifying competition in the deposit market and depressing other banks' margins. In contrast, the effects on the protected bank's risk taking and on welfare depend on the transparency of the banking sector. |
| Keywords: | Government bail-out, banking competition, transparency, opacity, “too big to fail", financial stability |
| JEL: | G21 G28 L11 |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:8&r=com |
| By: | José Cadima Ribeiro (Universidade do Minho - NIPE); José de Freitas Santos (ISCAP - IPP and NIPE-UM) |
| Abstract: | National firms find themselves in a crossroad. By one side, competitive forces in the domestic market have grown through the increasing presence of external competitors. on the other side, due to European integration and markets globalisation, they are called to follow the path of internationalisation, being well known that this road is neither easy or is available for every firm. In this paper we try to adress the issue of the options faced by Portuguese firms. According to that aim, a strategic options framework is shown, taking as organising axis the dimension of the firms (small/large) and the nature of the competitive advantages owned (idiosyncratic/extroverted). These theoretical paths are exemplified using a few case studies taken from the recent national entrepreneurial environment. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:16/2005&r=com |
| By: | Tong, Jian |
| Abstract: | This paper develops a theory of the firm, and equilibrium credit rationing mechanisms in oligopoly with R&D-product market competition. Credit rationing arises from a hold-up problem between wealth-constrained entrepreneurs and external investors. Underinvestment occurs if entrepreneurial wealth constraint is binding, even though the equilibrium corporate governance structure addresses the hold-up problem optimally. In a symmetric equilibrium outcome all firms face equitable credit-size rationing. In contrast the asymmetric equilibrium outcome sees some firms (the 'preys') denied external credits entirely while the others (the 'predators') receiving more favorable finances, which turns out to increase market concentration and overall R&D investments. Key words: credit rationing, oligopoly, hold-up, corporate governance, theory of the firm, market structure, predation |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:0505&r=com |
| By: | Elena Cefis; Orietta Marsili |
| Abstract: | This paper explores the relationship between innovation and the survival of manufacturing firms in the Netherlands. The determinants of the survival probability of a firm, traditionally identified in the size and age of a firm, are extended to include the ability of a firm to introduce an innovation in the market. The empirical analysis combines economic and demographic data from the Business Register of the population of firms active in the Netherlands with data on innovation derived from the second Community Innovation Survey. The survival probability of a firm is estimated by using a non-parametric approach: Transition Probability Matrices were calculating over different time periods. We observe that, in general, innovation has a positive and significant effect on firms' survival that increases as time lengthens. Furthermore, our results confirm that small and young firms are those most exposed to the risk of exit, but at the same time those that benefit most of innovation to survive in the market, especially in the longer term. |
| Keywords: | Firms Survival, Innovation, Firms Exit, Transition Probability Matrices |
| JEL: | L11 O30 D21 C14 L25 |
| Date: | 2003–11 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0318&r=com |
| By: | Luigi Benfratello (University of Torino and Ceris-CNR); Alberto Iozzi (University of Rome "Tor Vergata" and University of Leicester); Paola Valbonesi (University of Padua) |
| Abstract: | The Italian highway industry has undergone an institutional and regulatory reform through the last decade, characterised by changes in ownership and a new price cap framework. To assess the effect of the reforms on firms’ performance, we use information on all the 20 Italian concessionaires over the 1992-2003 period and 1) estimate the technical progress in the industry, thereby providing a reference value for the X factor in the price cap formula; 2) assess the relative productivity of private vs. public concessionaires; 3) evaluate whether price cap regulation has induced firms to use resources efficiently, 4) determine the possible effect of the inclusion of the quality index in the price cap formula. We find that the introduction of a price cap regime does not increase firms’ productivity whereas a sharp increase in maintenance costs is recorded, arguably due to the quality indicator in the price cap formula. Furthermore, firms appear to have gained from the privatisation process and from a technical progress occurred in the period. We also find high density economies and a steady and large increase in traffic. Overall, these results suggest that the X factor has been set too conservatively in past years which in turn explains the high profits recorded by franchisees under price cap regulation. |
| Keywords: | Price Cap Regulation, Motorways |
| JEL: | L51 L92 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0002&r=com |
| By: | Bjuggren, Per-Olof (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | As in many other countries Sweden has recently allocated licenses to the third generation (3G) of wireless telecommunication technology. But in contrast to Britain, Germany and Denmark, for example, a so-called beauty contest was used to earmark the rights. Promises of future infrastructure investments were used as criterion in the allocation of spectrum rights. The motivation was that using criteria other than price in the portioning of rights would be to the advantage of both consumers and producers and speed up the infrastructure investments. This paper questions the credibility of the promises made and claims that credibility of promises is a key problem in the use of beauty contests as allocation mechanism. The alternative allocation mechanism, an auction, does not suffer from the same problems of credibility. What is remarkable is that there was not much of economic analysis behind the decision to choose a beauty contest. Considering that the choice was between two ways of allocating rights to a scarce resource, the use of the radio spectrum, economists should have something to contribute. But surprisingly, they have not offered much. Theoretical underpinnings for the use of beauty contests seem to be lacking and the economic literature has very little to say. About the alternative, auctions, it has a lot to offer. <p> An evaluation of a beauty contest is thus a little of a green field exercise. A strand of the literature that could serve as a theory of beauty contests is that of competition for the market. This is an approach inspired by institutional economic analysis adopted in this paper. Auctions and beauty contest can be looked upon as ways to achieve some of the goals of regulation without the negative effects on the entrepreneurial spirit. The purpose of the paper is to evaluate a beauty contest like the one staged in Sweden for the allocation of 3G rights from an entrepreneurial perspective. A comparative analysis is made with auction as an alternative means of allocation. |
| Keywords: | Beauty contest; Allocation of spectrum rights; Opportunistic behavior; Ex post dimension of contracts |
| JEL: | L14 L96 P14 |
| Date: | 2005–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0041&r=com |
| By: | Yvan Lengwiler (University of Basel, Department of Economics (WWZ), Petersgraben 51, CH-4003 Basel, Switzerland); Elmar Wolfstetter (Institut für Wirtschaftstheorie I, Humboldt Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany) |
| Abstract: | In many auctions, the auctioneer is an agent of the seller. This invites corruption. We propose a model of corruption in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid, whichever is more profitable. We characterize equilibrium bidding in first- and second-price auctions, show how corruption distorts the allocation, and why both the auctioneer and bidders may have a vested interest in maintaining corruption. Bid rigging is initiated by the auctioneer after bids have been submitted in order to minimize illegal contact and to realize the maximum gain from corruption. |
| Keywords: | auctions, procurement, corruption, right of first refusal, numerical |
| JEL: | D44 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:39&r=com |
| By: | Elena Cefis; Matteo Ciccarelli; Luigi Orsenigo |
| Abstract: | Gibrat's law is a referent model of corporate growth dynamics. This paper employs Bayesian panel data methods to test for Gibrat's law and its implications. Using a Pharmaceutical Industry Database (1987-1998), we find evidence against Gibrat's law on average, within or across industries. Estimated steady states differ across firms, and firm sizes and growth rates don't converge within the same industry to a common limiting distribution. There is only weak evidence of mean reversion: initial larger firms do not grow relatively slower than smaller firms. Differences in growth rates and in size steady state are persistent and firm-specific, rather than sizespecific. |
| Keywords: | Gibrat's Law, Firm Growth, Pharmaceutical Industry, Heterogeneity, Bayesian Estimation |
| JEL: | C11 C23 D21 L11 L25 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0502&r=com |
| By: | Carolin Häussler (Institute for Innovation Research, Technology Management, and Entrepreneurship, University of Munich, Kaulbachstr. 45, D-80539 Munich, Germany) |
| Abstract: | The dramatic increase in interorganizational partnering in the last two decades raises questions for scholars and managers regarding the value impact of inter-firm collaborations. Using event study methodology, this paper tests whether stock market reactions differ when a collaboration formation or termination is announced. In addition, the study provides an in-depth analysis of potential determinants of stock market reactions to collaboration formation announcements. The sample consists of 1037 announcements in German stock markets from 1997 to 2002. The results show that an unexpected termination announcement decreases firm valuation, and a formation announcement increases firm valuation. Further, certain collaborations are more favorable than others, depending on firm industry, age, size, collaboration constellations, and equity versus non-equity investment in partner firm. The results open avenues for further research on partnering strategies. |
| Keywords: | Firm valuation, inter-firm collaboration, expectations, stock market reactions |
| JEL: | G14 L22 D23 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:14&r=com |
| By: | Georg von Graevenitz (Ludwig-Maximilians-Universität München, University of Munich, Kaulbachstr. 45, D-80539 Munich, Germany) |
| Abstract: | We analyse economic welfare in R&D intensive industries under varying assumptions on the spillover process. The focus lies on spillover processes with complementary R&D investments such as those modelling absorptive capacity. There spillovers give rise to both negative and positive externalities. We show that the rationale for public policy intervention is strengthened where spillovers also have positive effects. This conclusion is based on the supermodularity of the spillover process and the investment game. We characterise a large class of spillover processes with similar implications for public policy. We show that results of much empirical work on absorptive capacity extend to this class of models. |
| Keywords: | spillovers, complementarity, absorptive capacity, supermodularity, oligopolistic R&D |
| JEL: | L13 O31 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:29&r=com |
| By: | DAVID BACH (Instituto de Empresa) |
| Abstract: | Internet telephony (VOIP) has the potential to transform the world of voice communications more profoundly than anything since the invention of the telephone itself. As telecommunications incumbents and a range of new entrants begin rolling out commercial VOIP services, policymakers around the world are grappling with the regulatory implications. In the United States and the European Union, the two largest potential VOIP markets, efforts are underway to fit VOIP into existing regulatory frameworks. This process of "regulatory classification" is by no means a purely administrative act. A lot is at stake and different interest groups have therefore mobilized to shape the respective outcomes. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp05-19&r=com |
| By: | David R. Bell; Christian A.L. Hilber |
| Abstract: | We revisit and test Salop and Stiglitz (1982) Theory of Sales. Equilibrium predictions are that higher consumer storage costs lead to: (1) higher average prices, (2) fewer promotions, and (3) shallower promotions. Empirical estimates of storage cost are developed for approximately 1,000 households using the American Housing Survey (1989), United States Census (1990), and Stanford Market Basket Database (19911993). A test of the key assumption finds consumers with higher storage costs shop more often and purchase smaller quantities per visit; moreover, all three equilibrium predictions are supported. The estimated quantitative effects on shopping frequency and prices are economically important. |
| Keywords: | Consumer Behavior, Retail Prices, Price Promotion, Storage Costs. |
| JEL: | D12 D40 M3 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0523&r=com |
| By: | Radosveta Ivanova-Stenzel; Sabine Kroger |
| Abstract: | This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second-price sealed-bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers' behavior, but is not sufficient to explain sellers' decisions. We discuss other behavioral explanations that could account for the observed deviations. |
| Keywords: | Auction, negotiation, combined mechanisms, sequential mechanism, risk preferences, experiment |
| JEL: | C72 C91 D44 D82 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0530&r=com |
| By: | Giulio Bottazzi; Elena Cefis; Giovanni Dosi; Angelo Secchi |
| Abstract: | In this work we explore some basic properties of the size distributions of firms and of their growth processes both at aggregate and disaggregate levels. First, we investigate which properties of firm's size distributions and growth dynamics are robust under disaggregation. Second, at a disaggregate level, we try to identify those features which are generic and hold across all or most of the considered three digit sectors distinguishing them from sector-specific ones. Concerning firm growth, we mainly focus on the characterization of the distribution of growth rates, studying, again, the possible differences between sectors and between levels of aggregation. Finally, we begin to explore the relations between measures of size distributions and the nature of the underlying growth processes and discuss some admittedly unresolved puzzles. |
| Keywords: | Firms growth, Firm Size Distribution, Fat Tails, Kernel Estimation |
| JEL: | L11 O30 D21 C14 L25 |
| Date: | 2003–11 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0317&r=com |
| By: | Lamey, L.; Deleersnyder, B.; Dekimpe, M.G.; Steenkamp, J.B.E.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | This study investigates the cyclical dependence of private-label success in four countries. The results show that private-label share behaves countercyclically. Moreover, asymmetries are present in both the extent and speed of up- and down-ward movements in private-label share over the business cycle. Finally, part of private-labels? share gain during contractions is found to be permanent. |
| Keywords: | Business cycle;Private-label Success;Time-series Econometrics; |
| Date: | 2005–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30007668&r=com |