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on Industrial Competition |
| By: | Willi Semmler; Mika Kato (Department of Economics Howard University) |
| Abstract: | Recent literature in Industrial Organization has shown that the threat of entry limits the price setting power of dominant firms and stimulates the incumbents to increase innovations ---both leading to welfare improvements. On the other hand dominant firms as incumbents strive to build up entry preventing capital. In such an environment of heterogeneous firms, we study the dynamics of competition as suggested in an earlier paper by Brock (1983). When dominant firms face a threat of the competitive fringe’s entry in the industry they, therefore, will have an incentive to prevent it. Investing into barriers to entry capital through engaging in production activities with increasing returns and high adjustment cost of investment as well as through advertising, lobbying and patents the dominant firm can create thresholds above which fringe firms cannot induce price competition and stimulate innovations. The dominant firms thus face two types of investment: Entry-deterring investment and investment in physical capital for production activities. Depending on how the competitive fringe responds to the first type of investment, complex dynamics, multiple steady states and thresholds, separating different domains of attraction, may emerge. Since the effectiveness of entry-deterring investment depends in part on regulatory rules set and enforced by antitrust institutions, we show how an antitrust and competition policy can be designed that may prevent the build up of entry preventing capital strengthening incentives for price competition and innovations |
| Keywords: | entry-deterring investment |
| JEL: | L1 L4 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:194&r=com |
| By: | Hans Jarle Kind (Norwegian School of Economics and Business Administration); Tore Nilssen (University of Oslo); Lars Sørgard (Norwegian Competition Authority) |
| Abstract: | This paper analyses how competition between media firms influences the way they are financed. In a setting where monopoly media firms choose to be completely financed by consumer payments, competition may lead the media firms to be financed by advertising as well. The closer substitutes the media firms’ products are, the less they rely on consumer payment and the more they rely on advertising revenues. If media firms can invest in programming, they invest more the less differentiated the media products are perceived to be. |
| Keywords: | media; advertising; two-sided markets |
| JEL: | L22 L82 L86 M37 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieci:2005-08&r=com |
| By: | Pedro Mendi (Facultad de Ciencias Económicas y Empresariales Universidad de Navarra); |
| Abstract: | This paper proposes a model where an upstream monopolist sells an input to a downstream industry, which may alternatively acquire a perfect substitute for the monopolist's input from a competitive industry. By vertically integrating with a downstream firm, the upstream monopolist may charge a wholesale price above marginal cost, even if the competitive industry is as efficient as the monopolist. This result was not obtained under vertical separation. Furthermore, provided that the number of downstream firms is not too high, the range of values of the discount factor that sustain the monopoly price in the downstream market is enlarged by the introduction of the marked-up wholesale price. |
| JEL: | L42 L12 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp1705&r=com |
| By: | Alberto Iozzi (Universita degli Studi di Roma); Roberta Sestini (University of Rome I; Universita D'Annunzio) |
| Abstract: | Price capped firms enjoy a large degree of pricing discretion, which may damage captive customers and have adverse effects on the development of competition when regulated firms also operate in competitive industries. We study two alternative regulatory approaches to limit such a discretion. The first one places a fixed upper limit to the prices charged in captive markets; the other constrains the captive prices relatively to the price asset in the more competitive markets. We refer to the former approach as the Absolute regime, and to the latter as the Relative regime. We analyse the effects on prices, competition, and welfare stemming from the two regimes in a simple model where the regulated firm faces competition by a competitive fringe in some of the markets it serves. We find that the Relative regime is not much more effective in protecting captive customers since captive prices may be identical under both regimes. Moreover, since it makes more costly to the incumbent regulated firm to reduce its competitive price, this is weakly higher than under the Absolute regime. However, this is also the reason why the Relative regime turns out to be more pro-competitive: the total output supplied by competitors and/or the number of firms entering the potentially competitive market might be enhanced under this rule. The effects on aggregate welfare are ambiguous. We provide some evidence that the Relative regime is more likely to positively affect consumers' surplus and social welfare the more efficient is the competitive fringe. |
| Keywords: | price regulation, pricing discretion, competition |
| JEL: | L13 L50 |
| Date: | 2005–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:69&r=com |
| By: | Alessio D’Ignazio; Emanuele Giovannetti |
| Abstract: | In this paper we study concentration in the European Internet upstream access market. Measurement of market concentration depends on correctly defining the market, but this is not always possible as Antitrust authorities often lack reliable pricing and traffic data. We present an alternative approach based on the inference of the Internet Operators interconnection policies using micro-data sourced from their Border Gateway Protocol tables. Firstly we propose a price-independent algorithm for defining both the vertical and geographical relevant market boundaries, then we calculate market concentration indexes using two novel metrics. These assess, for each undertaking, both its role in terms of essential network facility and of wholesale market dominance. The results, applied to four leading Internet Exchange Points in London, Amsterdam, Frankfurt and Milan, show that some vertical segments of these markets are extremely competitive, while others are highly concentrated, putting them within the special attention category of the Merger Guidelines. |
| Keywords: | Network Industries, Internet, Market Concentration, Essential Facilities, BGP |
| JEL: | K21 L40 L86 L96 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0554&r=com |
| By: | Xavier Fageda (University of Barcelona) |
| Abstract: | This paper develops a model of airline competition. The model is based on a demand and pricing equation system, which is estimated for the Spanish airline market. The empirical implementation of the equation system relies on a simultaneous rather than a consecutive procedure. I test the explanatory power of alternative oligopoly models with capacity constraints. In addition, I analyze the degree of density economies. Results show that Spanish airlines conduct is less competitive than the Cournot solution. I also find evidence that thin routes can be considered as natural monopolies. |
| Keywords: | Oligopoly, Air Transportation, Multiple Equation Models |
| JEL: | L |
| Date: | 2005–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0511011&r=com |
| By: | Nicolas Gruyer (LEEA (air transport economics laboratory), ENAC) |
| Abstract: | This paper studies the optimal auction for a seller who is bound to sell a single item to one of two potential buyers organized in a ”well-coordinated” cartel. After discussing the way the cartel reacts to any auction mechanism, we show that if the seller has no way to deter collusion, he can still accomodate it optimally with a very simple mechanism, either having the cartel pay to get an efficient allocation or randomly allocating the item. We then discuss the way to implement this mechanism, so that it enables a fair amount of competition if the seller made a mistake and the buyers don’t collude. We find that a simple implementation using reserve prices and lotteries may yield expected revenues close to the optimum if buyers compete, while highly increasing expected revenues if they collude. Finally, we discuss the extension to the n-buyers case. |
| Keywords: | auctions; optimal auctions; collusion; cartel; mechanism design; auction theory |
| JEL: | D44 |
| Date: | 2005–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:enc:abcdef:auctio2&r=com |
| By: | Xavier Fageda |
| Abstract: | In this paper, we analyze how an airline can take advantage of airport dominance of a whole network in a market characterized by short-haul routes and congestion. In order to tackle this issue, we estimate an equation system, which is based on theoretical grounds, for the Spanish domestic market. We find that costs and demand benefits of airport dominance have to do with providing a high flight frequency. Such benefits can damage seriously the effectiveness of competition as long as the competitive status of major airline’s rivals is threatened. |
| Keywords: | Air Transportation, Multiple Equation Models, Oligopoly. |
| JEL: | L |
| Date: | 2005–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0511010&r=com |
| By: | Thomas Gehrig (Universität Freiburg); Rune Stenbacka (Swedish School of Economics, Helsinki) |
| Abstract: | We explore the effects of switching costs on the subgame perfect quality decisions of oligopolists with repeated price competition. We establish a strong strategic quality premium. We show that competition for the establishment of customer relationships will eliminate low-quality firms in period 1 and that low-quality firms can survive only based on poaching profits. The equilibrium configuration is characterized by an agglomeration of two providers of top-quality as soon as switching cost heterogeneity is sufficiently significant. We demonstrate a finiteness property, according to which the two top-quality firms dominate the market with a joint market share exceeding 50 %. |
| Keywords: | quality choice; switching costs; poaching; natural oligopoly |
| JEL: | D43 L15 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieci:2005-09&r=com |
| By: | Edner Bataille (California State University-Bakersfield); Benoit Julien (Australian Graduate School of Management, University of New South Wales) |
| Abstract: | This paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers. Sellers' expenditure on directly informative advertising attracts consumers only probabilistically. Consumers who happen to observe advertisements randomize over the advertised sellers using symmetric mixed strategies. Equilibrium prices and profit maximizing advertising levels are derived and their properties analyzed, including the interplay of prices and advertising with the market structure. The model generates a unimodal (inverted U-shape) relationship between both, individual and industry advertising level, and market structure. The relationship results from a trade off between a price effect and a market structure-matching effect. We find that the decentralized market has underprovision of advertising, both for individual sellers and industry wide, and that entry is excessive relative to the efficient level. We present a quantitative analysis to highlight properties of the models and to demonstrate the extent of inefficiency. |
| Keywords: | Advertising, pricing, market structure, endogenous matching, asymmetric information, efficiency. |
| JEL: | B21 C72 C78 D40 D43 D61 D83 J41 L11 M37 |
| Date: | 2005–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0511008&r=com |
| By: | Mark Armstrong (University College London) |
| Abstract: | This paper selectively surveys the recent literature on price discrimination. The focus is on three aspects of pricing decisions: the information about customers available to firms; the instruments firms can use in the design of their tariffs; and the ability of firms to commit to their pricing plans. Developments in marketing technology mean that firms often have access to more information about individual customers than was previously the case. The use of this information might be restricted by public policy towards customer privacy. Where it is not restricted, firms may be unable to commit to the use they make of the information. With monopoly supply, an increased ability to engage in price discrimination will boost profit unless the firm cannot commit to its pricing policy. With competition, the effects of price discrimination on profit, consumer surplus and overall welfare depend on the kinds of information and/or instruments available to firms. The paper investigates the circumstances in which price discrimination causes all prices (and hence profit) to fall. |
| Keywords: | Price discrimination, oligopoly, dynamic pricing |
| JEL: | L |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0511004&r=com |
| By: | Jian Zhang (EEE programme UNESCO, FEEM) |
| Abstract: | A global multi-sectoral, multi-regional computational general equilibrium model is employed to assess carbon taxes under perfect competition and monopoly. We found that regional studies of carbon taxation maybe inaccurate due to the carbon emission spillover effects. Emission taxes have stronger impacts on the economy in monopoly rather than on perfect competition in terms of magnitude. Carbon emission tax policy analysis which is based on perfect competition may also underestimate the losses of welfare compared with the case in imperfect competition. |
| Keywords: | environmental taxation, imperfect competition, Computable General Equilibrium |
| JEL: | D43 D58 L13 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:213&r=com |
| By: | Manuel L. Costa; Fernando S. Oliveira (Operational Research and Systems Warwick Business School) |
| Abstract: | Electricity markets are being liberalised and open to private competition in several countries. These liberalized electricity markets are very complex as the interactions between demand and supply are subject to several technicalities arising from the commodity being traded: electricity. One of these technicalities is that generators cannot store electricity: this fact implies that it needs to generate its production real-time. A second problem with this market are the different generation technologies used at different levels of demand, which implies that at different times of the day different generation costs are supported to meet demand: due to ramp-rate constraints, capacity available, and fixed and start-up costs. In this paper we analyze the issue of investment and the electricity system’s long-term security in an industry where a regulator controls the short-term prices, imposing a perfect competition outcome for “low†demand hours and a price cap at times where load is shed. We look at the following research questions: a) How does the oligopolistic structure of the market interact with the value of the different technologies? b) How do players define their investment strategies? c) How do the regulatory policies affect the investment in generation? Do they work similarly under perfect competition and oligopoly? d) Can markets invest enough capacity to ensure the long run security of the market? The main results of our analysis are following: 1. The impact of a given investment on the market price is independent of the player investing. 2. The impact of an investment on price is a function of the technology in which the investment takes place and of the cycle to which the price refers to. 3. The impact of price caps on the evolution of the market structure is non-linear, it cannot be too low or too high. 4. An oligopolistic electricity market fails to deliver the needed investment unless the regulators intervene. 5. The higher the reserve margin the higher the total investment. However, this instrument by itself was not able to provide the incentive needed to ensure the long-term security of the system, as in any of the experiments analyzed the peak demand is not completely satisfied. 6. Even a slight increase in demand, due to the reserve margin, leads to important changes on the relative value of the different technologies. 7. The main task of the regulatory authorities is to define a level of capacity payments that give the necessary incentive to investment, at the minimum cost: Capacity Payments are very important in shaping the generation structure. 8. Uncertainty reduces the value of Peak plants: this result clearly contradicts any common sense in these matters, as one would expect the presence of price uncertainty to be beneficial to Peak plants. The proportion invested in baseload plants increases with uncertainty of the energy price, decreasing the investment in shoulder plant. |
| Keywords: | agent-based, electricity markets, evolution, investment, regulation, simulation |
| JEL: | C73 D43 L11 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:430&r=com |
| By: | Dalida Kadyrzhanova |
| Abstract: | This paper argues that imperfect corporate control is a determinant of market structure. We integrate a widely accepted version of the separation of ownership and control -- Jensen's (1986) 'empire-building' hypothesis -- into a dynamic oligopoly model. Our main observation is that, due to product market competition, shareholders face an endogenous opportunity cost of governance. We derive shareholders' optimal governance choices and show analytically that governance has a first-order effect on firms' dynamic incentives and leads to increasing dominance and predation. Through numerical simulations we demonstrate that imperfect corporate control has a sizable adverse impact on market structure and consumer welfare. It results in low turnover, high concentration, persistently monopolized markets, and low industry-wide investment. As a consequence, consumer welfare is significantly - up to thirty percent - lower than in otherwise identical industries with full corporate control. These results suggest a role for public policy toward corporate governance as an effective pro-competitive tool. |
| Keywords: | Managerial Preferences, Optimal Governance, Dynamic Oligopoly, Markov Perfect Equilibrium |
| JEL: | L1 G34 L2 C63 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:421&r=com |
| By: | Simon Loertscher; Yves Schneider |
| Abstract: | In many markets homogenous goods are sold both by large global firms (“chain stores”) and small local firms. Surprisingly, chain stores often charge higher prices. Examples include hotels, airlines, and coffe shops. We provide a simple model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and change locations with a given probability. Consequently, chain stores insure consumers against switching costs. In equilibrium, chain stores charge higher prices, yet attract more consumers. Profits of local stores and chain stores increase with consumer mobility, but the latter do so faster. |
| Keywords: | Firm size; switching costs; consumer mobility; market structure |
| JEL: | D43 L15 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0515&r=com |
| By: | Deddy Koesrindartoto (Economics Iowa State University); Junjie Sun |
| Abstract: | In April 2003 the U.S. Federal Energy Regulatory Commission proposed the Wholesale Power Market Platform (WPMP) for common adoption by all U.S. wholesale power markets. The WPMP is a complicated market design envisioning day-ahead, real-time, and ancillary service markets maintained and operated by an independent system operator or regional transmission organization. Variants of the WPMP have been implemented or accepted for implementation in several regions of the U.S. However, strong opposition to the WPMP still persists in many regions due in part to a perceived lack of adequate reliability testing. This presentation will report on the development of an agent-based computational laboratory for testing the economic reliability of the WPMP market design. The computational laboratory incorporates several core elements of the WPMP design as actually implemented in March 2003 by the New England independent system operator (ISO-NE) for the New England wholesale power market. Specifically, our modeled wholesale power market operates over a realistically rendered AC transmission grid. Computationally rendered generator agents (bulk electricity sellers) and load-serving entity agents (bulk electricity buyers) repeatedly bid into the day-ahead and real-time markets using the same protocols as actual ISO-NE market participants. In each trading period the agents use reinforcement learning to update their bids on the basis of past experience. We are using our agent-based computational laboratory to test the extent to which the core WPMP protocols are capable of sustaining efficient, orderly, and fair market outcomes over time despite attempts by market participants to gain individual advantage through strategic pricing, capacity withholding, and induced transmission congestion. This presentation will report on some of our initial experimental findings. |
| Keywords: | Agent-based computational economics; Wholesale power market design; Learning agents |
| JEL: | L1 L5 L94 C6 C7 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:50&r=com |
| By: | Eugenio Miravete; Gabriel Basaluzzo (Economics University of Pennsylvania) |
| Abstract: | We present a flexible model of monopoly nonlinear pricing with endogenous participation decisions of heterogeneous consumers. We use computing intensive methods to fit the solution of this model to many nonlinear tariffs offered by incumbent monopolists in several early local U.S. cellular telephone markets. For each market, numerical solutions of two–point boundary problems identify the marginal cost, average price sensitivity of demand, marginal consumer type, and indexing parameters governing the distribution of the two-dimensional type components. The sources of identification are the position, shape, and allowance of free minutes that defines each tariff offered by monopolists as well as a measure of market penetration in each cellular market during the first and last quarter of monopoly regime. We use the distribution of these structural parameters across markets and time to evaluate the magnitude of the inefficient provision of goods due to asymmetric information, the importance of bunching of different consumer types, and the empirical relevance of random participation constraints. We use these structural parameters to provide a first performance comparison —profits and welfare— of nonlinear tariffs relative to linear, optimal two-part, Coasian marginal cost-plus fixed fee, and flat tariffs. We furthermore evaluate the potential welfare gains of alternative policies such as implementing a universal service requirement or allowing a second identical cellular telephone carrier. Finally, we also conduct a descriptive analysis of the sample variation of all structurally identified variables conditional on the observable characteristics of markets and cellular carriers |
| Keywords: | Nonlinear Pricing; Random Participation;Bucket Tariffs; Quantity Underprovision; Nonlinear vs. Restricted Pricing; Universal Service; Divestiture |
| JEL: | C63 D43 D82 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:114&r=com |
| By: | Philippe Bontems (Université des Sciences Sociales de Toulouse); Valérie Meunier (University of Aarhus) |
| Abstract: | We analyze a two-sender quality-signaling game in a duopoly model where goods are horizontally and vertically dierentiated. While locations are chosen under quality uncertainty, firms choose prices and advertising expenditures being privately informed about their types. We show that pure price separation is impossible, and that dissipative advertising is necessary to ensure existence of separating equilibria. Equilibrium refinements discard all pooling equilibria and select a unique separating equilibrium. When vertical differentiation is not too high, horizontal differentiation is maximum, the high-quality firm advertises, and both firms adopt prices that are distorted upwards (compared to the symmetric-information benchmark). When vertical differentiation is high, firms choose identical locations and ex post, only the high-quality firm obtains positive profits. Incomplete information and the subsequent signaling activity are shown to increase the set of parameters values for which maximum horizontal differentiation occurs. |
| Keywords: | advertising; location choice; quality; incomplete information; multi-sender signaling game |
| JEL: | D43 L15 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieci:2005-10&r=com |
| By: | Markus Pasche (University of Jena, Faculty of Economics) |
| Abstract: | The paper investigates the optimal regulation of a (software) firm which acts as a natural monopolist, who also offers a complementary good (IT services) on a competitive market. It is shown that a first-best-regulation accompanyied with an optimal taxation schedule in order to compensate the losses is equivalent to a cross-subsidisation of the software by the complementary good. This is the same result as in business models with Free/Open Source Software (F/OSS). Even if a price of zero for F/OSS does not reflect the use of resources for software development, the price system in F/OSS related markets leads to a welfare improving allocation. F/OSS license models can be seen as institutional arrangements which mimick a social planner. |
| Keywords: | natural monopoly, regulation, Ramsey pricing, welfare, complementary good, Open Source Software |
| JEL: | L51 H21 |
| Date: | 2005–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:jen:jenasw:2005-18&r=com |
| By: | Silvano Cincotti (University of Genoa DIBE); Eric Guerci |
| Abstract: | Since early nineties, worldwide production and distribution of electricity has been characterized by a progressive liberalization. The state-owned monopolistic production of electricity has been substituted by organized power exchanges (PEs). PEs are markets which aggregate the effective supply and demand of electricity. Usually spot-price market are Day Ahead Market (DAM) and are requested in order to provide an indication for the hourly unit commitment. This first session of the complex daily energy market collects and orders all the offers, determining the market price by matching the cumulative demand and supply curves for every hour of the day after according to a merit order rule. Subsequent market sessions (also online) operate in order to guarantee the feasibility and the security of this plan. The electric market is usually characterized by a reduced number of competitors, thus oligopolistic scenario may arise. Understanding how electricity prices depend on oligopolistic behavior of suppliers and on production costs has become a very important issue. Several restructuring designs for the electric power industry have been proposed. Main goal is to increase the overall market efficiency, trying to study, to develop and to apply different market mechanisms. Auction design is the standard domain for commodity markets. However, properties of different auction mechanism must be studied and determined correctly before their appliance. Generally speaking, different approaches have been proposed in the literature. Game theory analysis has provided an extremely useful methodology to study and derive properties of economic "games", such as auctions. Within this context, an interesting computational approach, for studying market inefficiencies, is the theory of learning in games. This methodology is useful in the context of infinitely repeated games. <BR> This paper investigates the nature of the clearing mechanism comparing two different methods, i.e., discriminatory and uniform auctions. The theoretical framework used to perform the analysis is the theory of learning in games. We consider an inelastic demand faced by sellers which use learning algorithms to understand proper strategies for increasing their profits. We model the auction mechanism in two different duopolistic scenario, i.e., a low demand situation, where one seller can clear all the demand, and a high demand condition, where both sellers are requested. Moreover, heterogeneity in the linear cost function is considered. Consistent results are achieved with two different learning algorithms |
| Keywords: | Agent-based simulation; power-exchange market; market power, reinforcement learning, electricity production costs |
| JEL: | C73 L1 L94 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:334&r=com |
| By: | Peter Møllgaard (Copenhagen Business School); Jo Lorentzen (Human Sciences Research Council, Cape Town, South Africa) |
| Abstract: | We briefly review the rationale behind technological alliances and provide a snapshot of their role in global competition, especially insofar as it is based around intellectual capital. They nicely illustrate the increased importance of horizontal agreements and thus establish the relevance of the topic. We move on to discuss the organisation of industries in a dynamic context and draw out consequences for competition policy. We conclude with an outlook on the underlying tensions between technology alliances, competition policy, and industrial policy. |
| Keywords: | competition policy; innovation; alliances; industrial policy |
| JEL: | L4 L5 O31 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieci:2005-12&r=com |
| By: | Xavier Gabaix; David Laibson |
| Abstract: | Bayesian consumers infer that hidden add-on prices (e.g. the cost of ink for a printer) are likely to be high prices. If consumers are Bayesian, firms will not shroud information in equilibrium. However, shrouding may occur in an economy with some myopic (or unaware) consumers. Such shrouding creates an inefficiency, which firms may have an incentive to eliminate by educating their competitors' customers. However, if add-ons have close substitutes, a "curse of debiasing" arises, and firms will not be able to profitably debias consumers by unshrouding add-ons. In equilibrium, two kinds of exploitation coexist. Optimizing firms exploit myopic consumers through marketing schemes that shroud high-priced add-ons. In turn, sophisticated consumers exploit these marketing schemes. It is not possible to profitably drive away the business of sophisticates. It is also not possible to profitably lure either myopes or sophisticates to non-exploitative firms. We show that informational shrouding flourishes even in highly competitive markets, even in markets with costless advertising, and even when the shrouding generates allocational inefficiencies. |
| JEL: | D00 D60 D80 L00 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11755&r=com |
| By: | Michael G. Kollo (Financial Markets Group, London School of Economics, London, WC2A 2AE, United Kingdom) |
| Abstract: | We investigate the competitive landscape of underwriting services in the Eurobond market including the choice of underwriter and underwriter gross spread. We find a significant but declining association between the home market of the Eurobond’s currency of denomination and that of the lead underwriter. These bonds underwritten by underwriters ‘local’ to the currency also carry significantly lower underwriter gross spreads vis-à-vis other Eurobonds. The amalgamation of the European currencies into the Euro resulted in a significant shift in the competitive landscape for underwriting services. We find a significant portion of market shares shifted from the ‘local’ European underwriters to non-‘local’ U.S. underwriters with the introduction of the Euro. Moreover, the volume of new issues rose and the gross underwriter spread declined significantly. Our empirical results suggest that Eurozone underwriters responded to the increased entry of U.S. and other Eurozone underwriters with aggressive discounting of the underwriter gross spread. |
| Keywords: | Underwriter competition; Underwriter spreads; Eurobond market. |
| JEL: | G15 G24 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050550&r=com |
| By: | Maria Jesus Nieto; Lluis Santamaría |
| Abstract: | In the current competitive scenario, firms are driven to introduce products with a higher degree of novelty. Consequently, there is a growing need to understand the critical success factors behind radical innovation. Specifically, this work empirically and theoretically analyses the role of different types of collaborative networks in achieving product innovation and, more precisely, the degree of novelty. Using a longitudinal data of Spanish manufacturing firms, our results show that the continuity on the co-operative strategy, the type of partner and the diversity of collaborative networks are critical factors in achieving a higher degree of novelty in product innovation. |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb056516&r=com |
| By: | Facundo Albornoz, Gregory Corcos and Toby Kendall |
| Abstract: | We model subsidy competition for a foreign MNC’s investment in a two-country PTA. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment, even for a single government. Considering competition between member states, it widens the scope of harmful subsidy competition. While our predictions are sensitive to the acquisition price, we predict that in many cases a ban on subsidies may increase welfare. In addition, we show how trade integration and increased competition for targets raise the prospects for social waste. Finally, if FDI entails significant positive spillovers to the host country, fiercer competition for investment and greater welfare losses should be expected. |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:05-15&r=com |
| By: | Jonathan Beck; Michal Grajek; Christian Wey |
| Abstract: | This paper presents a set of panel data to study the diffusion of retail checkout barcode scanning in ten European countries over the period 1981-1996. Estimates from a standard diffusion model suggest that countries differ most in the long-run diffusion level of barcode scanning and less in timing or diffusion speed. We present evidence that the emergence of hypermarkets raises competitive intensity and use hypermarket data, among other variables, in a pooled estimation. Results suggest that hypermarket competition reduces longrun adoption of information technology (IT) in retailing. In particular, the emergence of hypermarkets seems to deepen retail segmentation by inducing potential adopters (e.g. supermarkets) to exit the market and/or by discouraging adoption by other retail formats. Consistent with expectations, scale and income effects spur IT diffusion and there is a classic substitution effect: when wages rise, diffusion of a labor-saving technology such as barcode scanning is more intense. We do not find a significant impact of employment protection legislation. <br> <br> <i>ZUSAMMENFASSUNG - (Wettbewerb durch Hypermärkte und die Diffusion von Scannerkassen im Einzelhandel) <br> In diesem Papier stellen wir einen Datensatz zur Diffusion des Barcode- Scannens im Einzelhandel in zehn europäischen Ländern zwischen 1981 und 1996 vor. Schätzergebnisse auf Basis eines bewährten Diffusionsmodells ergeben, dass diese Länder sich hauptsächlich im langfristigen Verbreitungsniveau des Barcode-Scannens unterscheiden, und weniger in Diffusionsbeginn und -geschwindigkeit. Wir präsentieren Evidenz dafür, dass die Verbreitung von Hypermärkten die Wettbewerbsintensität im Einzelhandel erhöht und verwenden Daten zu Hypermärkten, zusammen mit anderen Variablen, in einer gemeinsamen Schätzung. Die Ergebnisse legen nahe, dass Wettbewerb durch Hypermärkte sich langfristig negativ auf die Diffusion von Informationstechnologie (IT) im Einzelhandel auswirkt. Insbesondere scheint die Verbreitung von Hypermärkten die Segmentierung im Einzelhandel zu vertiefen, indem sie potentielle Nutzer von IT (z.B. Supermärkte) zum Marktaustritt verleitet und/oder andere Einzelhändler von der Nutzung abschreckt. Wie erwartet stärken Skalen- und Einkommenseffekte die Diffusion von IT, und es gibt einen klassischen Substitutionseffekt: bei steigenden Löhnen ist die Diffusion einer arbeitssparenden Technologie wie dem Barcode-Scannen intensiver. Gesetzgebung zum Kündigungsschutz scheint keine signifikanten Auswirkungen auf IT-Diffusion zu haben.</i> |
| Keywords: | IT diffusion, retail competition, hypermarkets |
| JEL: | L5 L81 O33 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:wzb:wzebiv:spii2005-19&r=com |
| By: | Erik Canton (CPB Netherlands Bureau for Economic Policy Analysis); Bert Minne (CPB Netherlands Bureau for Economic Policy Analysis); Ate Nieuwenhuis (CPB Netherlands Bureau for Economic Policy Analysis); Bert Smid (CPB Netherlands Bureau for Economic Policy Analysis); Marc van der Steeg (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | Long-run per capita economic growth is driven by productivity growth. Major determinants of productivity are investments in education and research, and the intensity of competition on product markets. While these ideas have been incorporated into modern growth theories and tested in empirical analyses, they have not yet found their way to applied macroeconomic models used to forecast economic developments. In this paper, we discuss various options to include human capital, R&D and product market competition in a macroeconomic framework. We also study how policy can affect the decisions to build human capital or to perform research, and how competition policy impacts on macroeconomic outcomes. We finally sketch how these mechanisms can be implemented into the large models used at the Netherlands Bureau for Economic Policy Analysis (CPB). |
| Keywords: | Human capital, R&D, competition, applied macroeconomic models |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:epr:enepwp:038&r=com |
| By: | Per Baltzer Overgaard (University of Aarhus); Peter Møllgaard (Copenhagen Business School) |
| Abstract: | In the economics literature, various views on the likely (efficiency) effects of information exchange, communication between firms and market transparency present themselves. Often these views on information flows are highly conflicting. On the one hand, it is argued that increased information dissemination improves firm planning to the benefit of society (including customers) and/or allows potential customers to make the right decisions given their preferences. On the other hand, the literature also suggests that increased information dissemination can have significant coordinating or collusive potential to the benefit of firms but at the expense of society at large (mainly, potential customers). In this chapter, we try to make sense of these views, with the aim of presenting some simple lessons for antitrust practice. In addition, the chapter presents some cases, from both sides of the Atlantic, where informational issues have played a significant role. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieci:2005-11&r=com |
| By: | Robert C. Feenstra; Yongmin Chen |
| Abstract: | This paper studies a simple model of buyer investment and its effect on the variety and vertical structure of international trade. A distinction is made between two types of buyer investment: "flexible" and "specific." Their interactions with the entry and pricing incentives of suppliers are analyzed. It is shown that (i) there can be multiple equilibria in the variety of products traded, and (ii) less product variety is associated with more intrafirm trade. The possibility of multiple equilibria is consistent with the observation that some similar economies, such as Taiwan and South Korea, differ substantially in their export varieties to the U.S. A formal empirical analysis confirms the negative correlation between product variety and intrafirm trade. |
| JEL: | F1 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11752&r=com |
| By: | Delphine Chabalier (PACTE - Politiques publiques, ACtion politique, TErritoires - http://www.pacte.cnrs.fr/ - IEP GRENOBLE;CNRS : UMR5194 - Université Joseph-Fourier - Grenoble I;Université Pierre Mendès-France - Grenoble II) |
| Abstract: | Les économies politiques du rail sont en cours de réformes depuis une dizaine d'années. Un des faits marquants est l'ouverture à la concurrence du transport européen de fret international, le 15 mars 2003. Du fait des différentes réformes institutionnelles nationales et européennes, les entreprises ferroviaires sont contraintes de passer d'une situation monopolistique à un niveau national à une situation concurrentielle à l'échelle européenne, actuellement pour le transport international du fret. Dans ce nouveau contexte institutionnel, nous cherchons à montrer que la Deutsche Bahn et la SNCF, entreprises ferroviaires historiques respectivement de l'Allemagne et de la France, ne disposent pas des mêmes avantages comparatifs dans le marché du fret. <br />Pour cela, nous partageons l'hypothèse de l'existence d'un équilibre institutionnel spécifique à chaque économie politique nationale, qui offre des avantages compétitifs particuliers à un secteur donné (Amable, 2003; Hall, Soskice, 2001). Nous cherchons alors à opérationnaliser l'approche des variétés du capitalisme proposée par Hall et Soskice qui mettent comme nous au centre de leur réflexion les entreprises. Cette approche vise à comprendre pourquoi des nations particulières tendent à se spécialiser dans des types de production ou des produits spécifiques en utilisant le concept d'avantage comparatif institutionnel: la structure institutionnelle d'une économie particulière offre aux entreprises des avantages leur permettant de s'engager dans des types d'activité spécifiques sur son territoire (Hall, Soskice, 2003: 85).<br />Hall et Soskice proposent alors de s'intéresser à cinq sphères d'activité pour lesquelles les entreprises sont obligées de développer leurs relations pour résoudre leurs problèmes de coordination critique pour leur compétence principale: la sphère de relations industrielles, la sphère de formation professionnelle et d'éducation, la sphère de la gouvernance des entreprises, la sphère des entreprises et des salariés. Pour comprendre les avantages compétitifs des entreprises ferroviaires allemandes et françaises, il nous apparaît nécessaire de tenir compte de critères particuliers au secteur ferroviaire soit: les géographies industrielles de ces deux pays, les relations de l'entreprise avec l'État et les syndicats, l'évolution des politiques nationales de transport c'est-à-dire les rapports rail-route et la relation des transports ferroviaires des voyageurs et du fret. |
| Keywords: | secteur ferroviaire; réforme; avantage comparatif; france; allemagne |
| Date: | 2005–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00005255_v1&r=com |