nep-com New Economics Papers
on Industrial Competition
Issue of 2005‒12‒20
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. The reciprocal producers' incentives to prey and the relailers' buying power By Bergès Sennou, F.; Chambolle, C.
  2. Cross-Border Mergers and Acquisitions: On Revealed Comparative Advantage and Merger Waves By Steven Brakman; Harry Garretsen; Charles van Marrewijk
  3. Entry and Exit in a Liberalised Market. By Maria J. Gil-Molto; Claudio A. Piga
  4. Competition in Large Markets By Jeffrey R. Campbell
  5. New Anti-Merger Theories: A Critique By Edward J. Lopez
  6. Two-part tariffs versus linear pricing between manufacturers and retailers : empirical tests on differentiated products markets By Bonnet, C.; Dubois, P.; Simioni, M.
  7. Delivered versus Mill Nonlinear Pricing in Free Entry Markets By Jorge, Silvia Ferreira; Pires, Cesaltina Pacheco
  8. Regulation of telecommunication and deployment of broadband By Machiel van Dijk; Machiel Mulder
  9. Incumbency and Entry in License Auctions: The Anglo-Dutch Auction Meets Other Simple Alternatives By Azacis, Helmuts; Burguet, Roberto
  10. Perfect Competition, Spatial Competition, and Tax Incidence in the Retail Gasoline Market By James Alm; Edward Sennoga; Mark Skidmore
  11. Product Market Competition, Profit Sharing and Equilibrium Unemployment By Erkki Koskela; Rune Stenbacka
  13. Confirming the price effects of private labels development By Bontemps, C.; Orozco, V.; Réquillart, V.
  14. On Strategic Enabling of Product Piracy in the Market for Video Games By Oliver Gürtler

  1. By: Bergès Sennou, F.; Chambolle, C.
    Abstract: In this paper, we analyze how the upstream Bertrand competition is distorted when we take into account repetition of the interactions within a vertical relationship. We argue that, in a two-period setting, a downstream monopsonist may prevent an efficient producer to prey on a less efficient upstream competitor. The reason is the retailer has an incentive to maintain the inefficient producer on the upstream market in order to preserve its second period buying power towards the efficient supplier. We thus point out that there exists an equilibrium where the efficient supplier grants tariff concessions to the monopsonist retailer to become its exlusive supplier and benefits of a monopoly power in the second period. However, there exists another type of equilibrium where te retailer maintain both suppliers in the first period. In this latter case, for high value of future (high), producters make the retailer pay the high price for enjoying manufacturer's competition in the second period : producers realize a first period monopoly profit whereas competing à la Bertrand. ...French Abstract : Dans cet article, les auteurs analysent comment la concurrence amont à la Bertrand est faussée lorsque l'on prend en compte l'aspect répété des intéractions dans les relations verticales. Ils prouvent que, dans un jeu à deux périodes, un monopsoniste en aval préfère parfois empêcher que le producteur le plus efficace ne s'attaque au producteur moins efficace. La raison est que le détaillant trouve un intérêt à maintenir le producteur inefficace sur le marché amont afin de préserver la concurrence en seconde période. Ils montrent donc qu'il existe un équilibre oû le producteur efficace accorde des concessions tarifaires au détaillant pour devenir son fournisseur exclusif, bénéficiant alors d'un pouvoir de monopole en seconde période. Cependant, il existe aussi un autre type d'équilibre oû le détaillant maintient les deux producteurs en première période. Dans un tel cas, pour des valeurs élevées du taux d'escompte, les producteurs font payer le prix fort au distributeur pour son opportunisme à vouloir faire jouer la concurrence en amont en seconde période. Les producteurs réalisent alors un profit de monopole en première période alors qu'ils se concurrencent à la Bertand.
    JEL: L14 L12 D2
    Date: 2005
  2. By: Steven Brakman; Harry Garretsen; Charles van Marrewijk
    Abstract: By combining two large data sets (on international trade flows and on mergers and acquisitions - M&As), we are able to test two implications of Neary’s (2003, 2004a) recent theoretical work. Analyzing M&As in a General Oligopolistic Equilibrium (GOLE) model incorporating strategic interaction between firms in a general equilibrium setting, we argue that: (i) M&As follow revealed comparative advantage as measured by the Balassa index, and (ii) M&As come in waves. We find convincing support for both hypotheses, thus showing for the first time that there is an empirical connection between export performance and mergers and acquisitions.
    Keywords: comparative advantage, cross border mergers and acquisitions, merger waves, general oligopolistic equilibrium model
    JEL: F10 F12 L13
    Date: 2005
  3. By: Maria J. Gil-Molto (Loughborough University Economics Department); Claudio A. Piga (Loughborough University Economics Department)
    Abstract: We analyze the determinants of entry and exit in the European Airline Markets in the post-liberalization period. Unlike previous studies, we find that the presence of charter or seasonal operators and the level of quality provided by the incumbents are relevant to explain entry and exit. Differential traits in the main low cost airlines' entry and exit behavior are also analysed.
    Keywords: Entry, Exit, Airlines, Conditional Logit
    JEL: L11 L93
    Date: 2005–12
  4. By: Jeffrey R. Campbell
    Abstract: This paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions: Increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring non-trivial strategic considerations, producers' prices fall as their numbers increase. Hence, examining the relationship between market size and producers' actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition. To illustrate its application, I examine observations of restaurants' seating capacities, exit decisions, and prices from 224 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' capacities, decreases their exit rate, and decreases their prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover.
    JEL: L11 L81
    Date: 2005–12
  5. By: Edward J. Lopez (San Jose State University)
    Abstract: The purpose of this paper is to evaluate two new anti-merger instruments, innovation markets and unilateral effects, on the basis of economic theory and evidence. I first discuss how the economics of antitrust has developed over the years, with the intention of characterizing the intellectual inheritance of 1990s’ antitrust regulators. Within this context, I then discuss each anti-merger instrument, how it has been applied in specific cases, and how it accords with underlying economic science. On the basis of these arguments, antitrust regulators should pause and reconsider the theoretical and empirical bases of applying unilateral effects and innovation markets to merger investigations.
    Keywords: antitrust, mergers, innovation markets, unilateral effects
    JEL: K
    Date: 2005–12–12
  6. By: Bonnet, C.; Dubois, P.; Simioni, M.
    Abstract: We present a methodology allowing to introduce manufacturers and retailers vertical conracting in their pricing strategies on a differentiated product market. We consider in particular two types of non linear pricing relationships, one where resale price maintenance is used with two part tariffs contracts and one where no resale price maintenance is allowed in two part tariffs contracts. Our contribution allows to recover price-cost margins from estimates of demand parameters both under linear pricing models and two part tariffs. The methodology allows then to test between different hypothesis on the contracting and pricing relationships between manufacturers and retailers in the supermarket industry using exogenous variables supposed to shift the marginal costs of production and distritution. We apply empirically this method to study the market for retailing bottle water in France. Our empirical evidence shows that manufacturers and retailers use non linear pricing contracts and in particular two part tariffs contracts with resale price maintenance. At last, thanks to the estimation of our structural model, we present some simulations of counterfactual policy experiments like the change of pricing policies from two part tariffs to linear pricing between manufacturers and retailers, or the change of ownership of some products between manufacturers. ...French Abstract : Dans cet article, les auteurs présentent une méthodologie permettant de modéliser des contrats dans les stratégies de fixation des prix des distributeurs et des producteurs sur un marché oû les produits sont différenciés. Notamment, ils considèrent deux types de contrats à tarifs binômes pour modéliser les relations verticales : avec ou sans prix de revente imposés par les producteurs. Ce papier permet de déterminer les marges prix-coût à partir de paramètres estimés de la demande à la fois pour des modèles de double marginalisation et pour des modèles à tarifs binômes. Différentes hypothèses sur les relations entre producteurs et distributeurs sont alors testées en utilisant des variables exogènes supposées faire varier les coûts marginaux de production et de distribution. Les auteurs appliquent empiriquement cette méthode au marché de l'eau plate nature embouteillée en France. Les résultats empiriques montrent que les producteurs et les distributeurs utilisent des contrats à tarifs binômes avec prix de revente imposés. De plus, grâce aux estimations du modèle structurel, les auteurs simulent des changements de propriété des produits entre producteurs et distributeurs ainsi que des changements de la politique de fixation des prix dans les relations verticales.
    JEL: L13 L81 C12 C3
    Date: 2005
  7. By: Jorge, Silvia Ferreira; Pires, Cesaltina Pacheco
    Abstract: This paper discusses a model where consumers simultaneously differ according to one unobservable (preference for quality) and one observable characteristic (location). In these circumstances nonlinear prices arise in equilibrium. The main question addressed in this work is whether firms should be allowed to practise different nonlinear prices at each location (delivered nonlinear pricing) or should be forced to set an unique nonlinear contract (mill nonlinear pricing). Assuming that firms can costless relocate, we show that the free entry long-run number of firms may be either smaller, equal, or higher under delivered nonlinear pricing. In addition, we show that delivered nonlinear pricing yields in the long-run higher welfare and, consequently, our results support the view that discriminatory nonlinear pricing should not be prohibited.
    Keywords: Delivered nonlinear pricing, Mill nonlinear pricing, Asymmetric information, Pricing regulation
    JEL: D43 L13 D82
    Date: 2004
  8. By: Machiel van Dijk; Machiel Mulder
    Abstract: This paper explores the question whether regulation in telecommunications encourages or hampers the development of new technologies. <P> Contrary to other network industries, the telecommunications industry is more and more characterized by competing network technologies, such as cable, copper, and wireless. Regulation is, however, still needed as in several components of telecommunications sources of market power remain. The key issue in the regulation of access to a network is the possible trade-off between static efficiency and dynamic efficiency. Favourable conditions for access to the network contribute to allocative efficiency and productive efficiency, but can negatively affect incentives for investments in upgrading of existing infrastructures and developing new ones. <P> In the Netherlands, regulation of the telecommunication industry is designed to enhance competition between alternative infrastructures without affecting the technology choice of both incumbents and entrants. In the market for unbundled access to the local loop and the market for high quality wholesale access, a trade-off exists between static efficiency and dynamic efficiency. Regulated access tariffs, which are based on average costs, seem to be a good compromise between static and dynamic efficiency. Tariffs for access to the local loop reflect actual costs of the existing copper infrastructure, giving entrants incentives to make efficient make-or-buy decisions. In addition, the threat of infrastructure competition in the local loop, as well as the service-based competition between providers using different infrastructures, i.e. copper and cable, provide incentives for the incumbent to increase efficiency. <P> Our overall conclusion is that Dutch regulation of the telecommunication industry gives efficient incentives for technological developments such as the deployment of broadband.
    Keywords: telecommunication; telecom; network; network industries; broadband; regulation; market failure
    JEL: L51 O38
    Date: 2005–12
  9. By: Azacis, Helmuts (Cardiff Business School); Burguet, Roberto
    Abstract: The existence of ex-ante strong incumbents may constitute a barrier to entry in auctions for goods such as licenses. Introducing inefficiencies that favor entrants is a way to induce entry and thus create competition. Designs such as the Anglo-Dutch auction have been proposed with this goal in mind. We first show that indeed the Anglo- Dutch auction fosters entry and increases the revenues of the seller. However, we argue that a more eective way could be to stage the allocation of the good so that each stage reveals information about the participants. We show that a sequence of English auctions, with high reserve prices in early rounds, is a procedure with this property that is more efficient than any one-stage entry auction. Moreover, it also dominates the Anglo-Dutch auction in terms of seller's revenues.
    Date: 2005–12
  10. By: James Alm (Andrew Young School of Policy Studies, Georgia State University); Edward Sennoga (Andrew Young School of Policy Studies, Georgia State University); Mark Skidmore (Department of Economics, University of Wisconsin - Whitewater)
    Abstract: In this paper we use monthly gasoline price data for all fifty U.S. states over the period 1984 to 1999 to examine the incidence of state gasoline excise taxes. Standard economic theory predicts full shifting of the excise tax to consumers when the supply of gasoline is perfectly elastic, and our empirical results are largely consistent with this prediction. In general, we find full shifting of gasoline taxes to the final consumer, with changes in gasoline taxes fully reflected in the tax-inclusive gasoline price almost instantly, a result consistent with a retail gasoline market in which firms are perfectly competitive and produce at constant cost. In addition, although we find that gasoline retail prices demonstrate asymmetric responses to changes in gasoline wholesale prices, we find only limited evidence of such behavior for retail prices with respect to gasoline excise taxes. Importantly, we also present a novel application of a spatial price discrimination model to examine tax incidence in markets that are not perfectly competitive. In this alternative framework, the incidence of excise taxes depends upon the competitiveness of retail gasoline markets, which depends in turn on spatial aspects of the market. Consistent with this alternative theoretical framework, our empirical estimates demonstrate that gasoline markets in urban states exhibit full shifting, but those in rural states demonstrate somewhat less than full shifting.
    Keywords: incidence, spatial competition, asymmetric response
    JEL: H22
    Date: 2005–10
  11. By: Erkki Koskela; Rune Stenbacka
    Abstract: We investigate the implications of product market imperfections on profit sharing, wage negotiation and equilibrium unemployment. The optimal profit share, which the firms use as a wage-moderating commitment device, is below the bargaining power of the trade union. Intensified product market competition decreases profit sharing, but increases the negotiated base wage, because the wage-increasing effect of reduced profit sharing dominates the wage-reducing effect associated with a higher wage elasticity of labor demand. Finally, we show that intensified product market competition does not necessarily reduce equilibrium unemployment, because it induces both higher wage mark-ups and lower optimal profit shares.
    Keywords: product market competition, profit sharing, wage bargaining, equilibrium unemployment
    JEL: J33 J51 L11
    Date: 2005
  12. By: Arturo Vasquez Cordano (OSINERG)
    Abstract: This paper tests and confirms the hypothesis that retail and wholesale Diesel 2 prices respond more quickly to increases than to decreases in wholesale and crude oil prices, respectively. Among the possible sources of this asymmetry, we find: production / inventory adjustment lags, refining adjustments, market power of some sellers, searching costs, among others. By analyzing price transmission at different points of the distribution chain, this paper attempts to shed light on these theories for the Peruvian oil industry. Wholesale prices for Diesel 2 show asymmetry in responding to crude oil price changes, which may refl ect inventory adjustment effects. Asymmetry also appears in the response that retail prices give to wholesale price changes, presumably indicating short-run local market power among retailers or the existence of searching costs.
    Keywords: Price-response asymmetry, oil, Diesel 2 prices, impulse response analysis
    JEL: D43 E31 L71
    Date: 2005–12–11
  13. By: Bontemps, C.; Orozco, V.; Réquillart, V.
    Abstract: We study the price response of national brands to the development of private labels. We use monthly data from a consumer survey reporting their purchases for 218 food products. We show that when private labels have a significant effect on national brands prices (144 cases over 218), that is positive (89%). We also show that the increase in the prices of national brand products is explained by a strategy of product differentiation. Finally, price reaction of national brands differs with the type of private labels they are facing. This paper confirms, on a larger number of products, previous empirical results. ...French Abstract : Les auteurs étudient la réponse en prix des producteurs de marques nationales au développement des marques de distributeurs. Ils utilisent des données mensuelles d'achats issues d'un panel de consommateurs, concernant 218 produits alimentaires. Ils montrent que le développement des marques de distributeurs a un effet significatif sur les prix des marques nationales (144 cas sur 218), qui est positif (89%). Ils montrent aussi que l'augmentation des prix des marques nationales est, en partie, expliquée par une stratégie de différenciation des producteurs de marques nationales. Enfin, la réaction en prix des marques nationales est différente suivant le type des marques de distributeurs. Ce papier confirme, sur un plus grand nombre de produits, nos précédents résultats empiriques.
    JEL: L81 Q13 D4
    Date: 2005
  14. By: Oliver Gürtler
    Abstract: In this paper, we consider the market for video games, where some firms are active in both, the market for video games hardware and software. It is puzzling that hardware can be easily made compatible with duplicated (i.e. pirated) software. We ask, whether there exist strategic reasons explaining this puzzle. Firms may, for example, enable software piracy in order to increase their market shares in the hardware market. This will indeed be true, if hardware prices are fixed and the market is completely covered. With endogenous prices, however, price reactions to enabling of product piracy will offset the increase in market shares and copy protection will be set at the highest possible level. If, on the other hand, the market is only partially covered, copy protection will be strategically reduced. In doing so, hardware firms shift reservation prices from the software to the more important hardware market.
    Keywords: Video Games Market, Product Piracy, Fundamental Transformation
    JEL: D21 L13 L85
    Date: 2005–11

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