nep-com New Economics Papers
on Industrial Competition
Issue of 2005‒11‒09
eight papers chosen by
Russell Pittman
US Department of Justice

  1. Airline Price Competition: A Time Series Analysis of 'Low-Cost' Carriers. By David Edward Pitfield
  2. Market Power Assessment and Mitigation in Hydrothermal Systems By Rafael Kelman; Luiz Barroso; Mario Pereira
  3. Does geography play a role in takeovers? Theory and Finnish micro-level evidence By Petri Böckerman; Eero Lehto
  4. Proximity and R&D Cooperation between firms: Location, R&D and Output in an Oligopoly with Spillovers By Isabel Mota; António Brandão
  5. An influence of road pricing upon the performance of bus transit services in Oslo By Olga Ivanova
  6. Relationship lending and competition: Higher switching cost does not necessarily imply greater relationship benefits By Timo Vesala
  7. Telecommunications networks and services in Estonia. Lessons to other European countries. By Lauri Dieter Frank; Sarolta Németh
  8. Testing Gribat´s Law Across Regions. Evidence from Spain. By José Luis Calvo González

  1. By: David Edward Pitfield
    Abstract: This paper, after providing an introduction to the operating context of low cost carriers in Europe, examines the competitive pricing behaviour of airlines. Data is collected by route for cases where more than one airline is in direct competition. Data on fares is obtained from the internet for two airlines with competing services to Alicante, Prague and Malaga, departing from Nottingham East Midlands Airport in the UK, for the six working weeks up to and including the actual departure. These destinations represent leisure traffic. Two domestic business destinations were also selected to illustrate price competition on business demand where departure times were within a maximum of 20 minutes of each other and a further examination of competing services from London Gatwick (LGW) was made. Cross Correlation Analysis is used to examine whether, subject to a variety of lags, the prices offered by one airline can be seen to be both correlated with the other price series and to lead it. This provides some insight into the pricing strategy adopted by the competitors. Autocorrelation Functions (ACFs) and Partial Autocorrelation Functions (PACFs) can also be produced on the prices offered by each airline. These suggest the nature of the ARIMA model that can be fitted to the series and these models can show the degree to which series values are correlated with their own past values and whether a reasonable model could be based on an ARIMA approach. The relative strength of these two relationships is examined; are prices more closely explained by the competitor's actions or the airlines own past price setting?
    Date: 2004–08
  2. By: Rafael Kelman (PSR); Luiz Barroso (PSR); Mario Pereira (PSR)
    Abstract: The objective of this work is to investigate market power issues in bid- based hydrothermal scheduling. Initially, market power is simulated with a single stage Nash-Cournot equilibrium model. Market power assessment for multiple stages is then carried through a stochastic dynamic programming scheme. The decision in each stage and state is the equilibrium of a multi-agent game. Thereafter, mitigation measures, specially bilateral contracts, are investigated. Case studies with data taken from the Brazilian system are presented and discussed.
    Keywords: Game theory, Hydroelectric-thermal power generation, Power generation economics
    JEL: C7 D8
    Date: 2005–08–30
  3. By: Petri Böckerman; Eero Lehto
    Abstract: This study explores domestic inter-regional merger flows. Theoretical considerations based on monitoring are developed. The empirical part of the study is based on the comprehensive public data on domestic mergers and acquisitions that is matched to the micro-level data sources maintained by Statistics Finland in order to obtain several variables that help to characterize the companies involved. The Finnish evidence reveals that geographical closeness matters a great deal for inter-regional merger flows. This means that a great number of domestic mergers occur within narrowly defined regions. Domestic merger flows substantially reinforce the core-periphery dimension. The most important finding from matched data is that the strong ability by an acquiring company to monitor the target (measured by the knowledge embodied in human capital) is able to support mergers that occur across distant locations, other things being equal. Geographical closeness and proximity across industries are not related, based on the Finnish evidence.
    Date: 2004–08
  4. By: Isabel Mota; António Brandão
    Abstract: This paper aims at explaining how proximity between firms affects cooperation in R&D. For that purpose, it is proposed a three-stage game amongst three firms where each firm decides about location, R&D and output. Firms’ decision about location determines a R&D spillover, which is inversely related to the distance between firms. R&D output is assumed to be cost reducing and exhibit diminishing returns. Cooperation is only allowed in the R&D stage. Our results allow us to conclude that there is a positive relationship between R&D output equilibrium and the distance between firms when firms act independently. When firms cooperate in R&D, R&D output for a cooperating firm increases with the degree of information sharing between them, as well as with a reduction of the distance between cooperating firms. Firms’ decision about location is also affected by R&D activities: if R&D activities run independently, the clustering of firms only occurs for a convex spillover function; if R&D activities run cooperatively, clustering is always observed if there is an increased information sharing between firms. Keywords: Location, R&D cooperation, R&D spillovers
    Date: 2004–08
  5. By: Olga Ivanova
    Abstract: Discussions of road pricing have paid relatively small attention to the potential effects on the provision of public transport services in a region as depending upon the level of competition in a public transit sector. The present paper uses a fairly simple transport network equilibrium model of the greater Oslo region of Norway in order to investigate the impacts of road pricing upon the performance of bus transit sector. Empirical analysis is performed for the case of publicly and privately owned bus transit including the cases of monopoly, oligopoly and perfect competition. Analysis performed in the paper captures the present state of bus transit in the greater Oslo region as well as its possible future developments.
    Date: 2004–08
  6. By: Timo Vesala (Bank of Finland)
    Abstract: This paper studies relationship lending in a framework where the cost of switching banks measures the degree of banking competition. The relationship lender’s (insider bank’s) informational advantage creates a lock-in effect, which is at its height when the switching cost is infinitesimal. This is because a low switching cost gives rise to a potential adverse selection problem, and outsider banks are thus reluctant to make overly aggressive bids. This effect gradually fades as the magnitude of the switching cost increases, which de facto reduces the insider bank’s profits. However, after a certain threshold in the switching cost, the insider bank’s ‘mark-up’ begins to increase again. Hence, relationship benefits are a non-monotonous (V-shaped) function of the switching cost. The ‘dynamic implication’ of this pattern is that relationship formation should be more common under extreme market structures ie when the cost of switching banks is either very low or sufficiently high. Recent empirical evidence lends support to this prediction.
    Keywords: relationship lending, switching cost, banking competition
    JEL: G21 G24 D82 D43
    Date: 2005–08–31
  7. By: Lauri Dieter Frank; Sarolta Németh
    Abstract: Estonia has shown somewhat remarkable developments in the telecommunications – or more precisely, building up an efficient network of modern information and telecommunications technologies (ICTs) for the Information Society. This paper takes a look at the development of telecommunications infrastructure networks and services in Estonia. The study also evalu-ates what other countries could learn from Estonia. More specifically, by this study we at-tempt at answering whether Estonia is as successful as data suggests, what the factors behind this success are, and whether there are lessons to be learned for the entire European territory. The paper introduces to the development of the telecommunications infrastructure and ser-vices in Estonia, by presenting facts and figures, and comparing the progress of the country with that of other European countries. It also discusses the measures that have helped Estonia on the road to Information Society. The results show that in summary the success of Estonia seems to have been a result of three things: Proximity of Finland and Sweden, active regula-tion and relative early liberalization, and a competition and entrant friendly market environ-ment. The paper is an outgrowth of the ESPON (European Spatial Planning Observation Net-work) project 1.2.2 “Telecommunications Services and Networks: Territorial Trends and Ba-sic Supply of Infrastructure for Territorial Cohesion” (see:
    Date: 2004–08
  8. By: José Luis Calvo González
    Abstract: The article analyses if Gibrat’s law holds in different regions of Spain using a sample of Spanish manufacturing firms over the period 1990-2001. The regions are classified depending on the degree of development of the provinces included. The study draws upon a sample of 1073 manufacturing firms in which only 751 of them survived for the whole twelve years period. The analyses test Gibrat’s law by using the procedure proposed by Heckman, in which a probit survival equation is first estimated to correct for sample selection bias, estimating the model by maximum likelihood methods. The results reject Gibrat’s law for the most developed Spanish regions, supporting the proposition that small firms have grown faster, but accepts it for non developed areas. Additionally, the results show that innovating activity – both process and product – is a strong positive factor in firm’s survival, independently of the region firm is located. Journal of Economic Literature classification: L11; L25.
    Date: 2004–08

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