nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒01‒24
forty papers chosen by
Russell Pittman
US Department of Justice

  1. Network Asymmetries and Access Pricing in Cellular Telecommunications By Viktória Kocsis
  2. Asymmetric Fuel Pricing in Transition Economies: The Case of Moscow By Bakytzhanova Zhuldyz
  3. Preventing Monopoly or Discouraging Competition? The Perils of Price-Cost Tests for Market Power in Electricity By Brennan, Timothy
  4. Exclusive dealing, entry, and mergers By Chiara Fumagalli; Massimo Motta; Lars Persson
  5. Buyers’ miscoordination, entry, and downstream competition By Chiara Fumagalli; Massimo Motta
  6. The Competitive Role of the Transmisión System in Price-regulated Power Industries By M. Soledad Arellano; Pablo Serra
  7. Network Competition and Entry Deterrence By Calzada, Joan; Valletti, Tommaso
  8. EU Merger Remedies: A Preliminary Empirical Assessment By Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
  9. Product Market Competition and Economic Performance in France By Jens Høj; Michael Wise
  10. How Strong Buyers Spur Upstream Innovation By Inderst, Roman; Wey, Christian
  11. An Economic Approach to Article 82 - Report by the European Advisory Group on Competition Policy By Jordi Gual; Martin Hellwig; Anne Perrot; Michele Polo; Patrick Rey; Klaus Schmidt; Rune Stenbacka
  12. Tying, bundling and collusion. By David Spector
  13. Collusion in Growing and Shrinking Markets: Empirical Evidence from Experimental Duopolies By KLAUS ABBINK; JORDI BRANDTS
  14. Concentration and Competition: An Experiment By Henrik Orzen
  15. Technology Timing and Pricing In the Presence of an Installed Base By Qiu_Hong Wang; Kai-Lung Hui
  16. The market for melons: Cournot competition with unobservable qualities By Argenton, Cédric
  17. Competing for a Duopoly: International Trade and Tax Competition By Ferrett, Ben; Wooton, Ian
  18. U.S. Antitrust and EU Competition Policy: Where has the Former Been, Where is the Latter Going? By Stephen Martin
  19. Competition Policy and Regulation in Power and Telecommunications By Epictetus E. Patalinghug; Gilberto M. Llanto
  20. Market Structure in Services and Market Access in Goods By Joseph Francois; Ian Wooton
  21. Competition for Railway Markets: The Case of Baden-Württemberg By Lalive, Rafael; Schmutzler, Armin
  22. Competition Policy and EU Governance By Annette Bongardt
  23. The Pro-collusive Effect of Increasing the Repose Period for Price Fixing Agreements By Jeroen Hinloopen
  24. Sunk Prices And Salesforce Competition By Alejandro Corvalán; Pablo Serra
  25. How to control market power of activity centres? A theoretical model showing the advantages of implementing competition within organizations By Samuel Cruz Alves Pereira; Pedro Cosme Costa Vieira
  26. Competition and Car Longevity By Macauley, Molly; Hamilton, Bruce
  27. Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers By V. Joseph Hotz; Mo Xiao
  28. Hypermarket Competition and the Diffusion of Retail Checkout Barcode Scanning By Beck, Jonathan; Grajek, Michal; Wey, Christian
  29. Consumer Preference Not to Choose: Methodological and Policy Implications By Brennan, Timothy
  30. From regulation to free market: the experience of the European motor insurance market By Domenico SCALERA; Alberto ZAZZARO
  31. Do mergers improve information? Evidence from the loan market By Fabio Panetta; Fabiano Schivardi; Matthew Shum
  32. Endogenous Technical Change, Spillovers, and Market Structure By Stefan Behringer
  33. Competitiveness, market power and price stickiness: A paradox and a resolution. By Jean-Pascal Bénassy
  34. Fast-Falling Barriers and Growing Concentration: The Emergence of a Private Economy in China By Sean Dougherty; Richard Herd
  35. Product Quality Selection and Firm Survival. Evidence from the British Automobile Industry, 1895-1970. By Yuanyuan Peng
  36. Diritti televisivi, oligopolio ed intervento antitrust nella Pay-TV: il caso Telepiu'-Stream By Nicola MATTEUCCI
  37. VoIP under the EU Regulatory Framework: Preventing Foreclosure? By Sadowski, B.M.; Straathof, B.
  38. Competitiveness and Market Contestability of Major UK Banks By Matthews, Kent; Murinde, Victor; Zhao, Tianshu
  39. Assessing the Effects of Mergers and Acquisitions on Firm Performance, Plant Productivity, and Workers: New Evidence from Matched Employer-Employee Data By Donald S. Siegel; Kenneth L. Simons
  40. The pricing behaviour of Italian firms: new survey evidence on price stickiness By Silvia Fabiani; Angela Gattulli; Roberto Sabbatini

  1. By: Viktória Kocsis (Corvinus University of Budapest)
    Abstract: Network shares and retail prices are not symmetric in the telecommunications market with multiple bottlenecks which give rise to new questions of access fee regulation. In this paper we consider a model with two types of asymmetry arising from different entry timing, i.e. a larger reputation for the incumbent and lower cost of servicing for the entrant as a result of more advanced technology. As a result firms have divergent preferences over the access fee. In case of linear and non-linear prices the access fee might still act as the instrument of collusion, but only if a side-payment is permitted which is generally welfare decreasing. Moreover, in contrast with the European regulatory framework, the access fee on the basis of termination cost might not necessarily be a socially preferable solution.
    Keywords: cost asymmetry; brand loyalty; imperfect competition; network interconnection; access fee
    JEL: L11 L13 L51 L96
    Date: 2005–09–16
  2. By: Bakytzhanova Zhuldyz
    Abstract: Empirical studies (Bacon, 1991; Peltzman, 2000) show that output prices tend to respond faster to input price increases than to decreases. This paper finds out such asymmetry in the fuel market of Moscow and analyzes the influence of companies' and market characteristics on asymmetric response. The conclusion is that different mechanisms of the phenomenon, including tacit collusion and consumer search, probably coexist in the Moscow retail gasoline market.
    Keywords: Russia, Kazakhstan, market concentration, gasoline, asymmetric response
    JEL: C23 L11 L13 L81
    Date: 2005–12–29
  3. By: Brennan, Timothy (Resources For the Future)
    Abstract: Allegations of market power in wholesale electricity sales are typically tested using price-cost margins. Such tests are inherently suspect in markets - such as electricity - that are subject to capacity constraints. In such markets, prices can vary with demand while quantity, and thus cost measure, remain fixed. Erroneous conclusions are more likely when the proxy for marginal cost is the average operating cost of the marginal plant. Measured this way, Lerner indexes are consistent with competitive behavior. Using this proxy to cap wholesale prices, as the U.S. Federal Energy Regulatory Commission has proposed, would discourage entry by making it impossible for peak power suppliers to recover capital costs. The wholesale electricity sector may be susceptible to market power. But a preferable (if not unproblematic) test for market power would look not at prices but output, i.e., whether individual generators withheld energy that would have been profitable to supply at prevailing prices.
    Keywords: market power, electricity, peak load pricing
    JEL: D42 L11 L51 L94
  4. By: Chiara Fumagalli (Università Luigi Bocconi and CSEF); Massimo Motta (European University Institute, Universitat Pompeu Fabra and CEPR); Lars Persson (IUI (The Research Institute of Industrial Economics) and CEPR)
    Abstract: We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent’s bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer’s acceptance than in the case where entry can occur only by installing new capacity. Third, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas de-novo entry would be socially optimal (ii) it may deter entry altogether. Finally, we show that when exclusive deals include a commitment to future prices, they will increase welfare.
    Keywords: Countervailing Power; Exclusion; Buyers’ Fragmentation
    JEL: D4 L13 L41
    Date: 2006–01–01
  5. By: Chiara Fumagalli (Università Luigi Bocconi and CSEF); Massimo Motta (European University Institute, Universitat Pompeu Fabra and CEPR)
    Abstract: This paper shows that buyers’ coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant. If there was a single buyer, or if all buyers formed a central purchasing agency, coordination failures would be avoided and efficient entry would always occur. More generally, exclusion is the less likely the lower the number of buyers. For any given number of buyers, exclusion is the less likely the more fiercely buyers compete in the downstream market. First, intense competition may prevent miscoordination equilibria from arising; second, in cases where miscoordination equilibria still exist, it lowers the maximum price that the incumbent can sustain at such exclusionary equilibria
    Keywords: Countervailing Power; Exclusion; Buyers’ Fragmentation
    JEL: D4 L13 L41
    Date: 2006–01–01
  6. By: M. Soledad Arellano; Pablo Serra
    Abstract: This note shows how the transmission system can enhance competition in price-regulated power industries, thus extending earlier findings reported in the literature for deregulated industries. In the context of a two-technology, price-regulated power industry, we show that the interconnection of two markets initially supplied by a different monopoly reduces market power and raises welfare. We also show that the capacity of the transmission line plays a key role in determining whether market equilibrium lies closer to competition or monopoly.
    Date: 2005
  7. By: Calzada, Joan; Valletti, Tommaso
    Abstract: We develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition with access charges. Firstly, we show that, when incumbents do not face the threat of entry and compete in prices, they inefficiently establish the reciprocal access charge below cost. This inefficiency disappears if incumbents compete in utilities instead of prices. Secondly, we study how incumbents change their choices under the threat of entry when they determine an industry-wide (non-discriminatory) access charge. We show how incumbents may accommodate all possible entrants, only a group of them, or may completely deter entry. When entry deterrence is the preferred option, incumbents distort upwards the access charges.
    Keywords: entry deterrence; interconnection; telecommunications
    JEL: L41
    Date: 2005–12
  8. By: Tomaso Duso (Social Science Research Center Berlin (WZB), Reichpietschufer 50, D10785 Berlin, Germany. Tel: +49 30 25491 403, Fax: +49 30 25491 444.; Klaus Gugler (University of Vienna.; Burcin Yurtoglu (University of Vienna.
    Abstract: Mergers that substantially lessen competition are challenged by antitrust authorities. Instead of blocking anticompetitive transitions straight away, authorities might choose to negotiate with the merging parties and allow the transactions to proceed with modifications that restore or preserve the competition in the involved markets. We study a sample of 167 mergers that were under the European Commission’s scrutiny from 1990 to 2002. We use an event study methodology to identify the potential anticompetitive effects of mergers as well as the remedial provisions on these transactions. Stock market reactions around the day of the merger’s announcement provide information on the first question, whereas the stock market reactions around the commission’s final decision day convey information about the outcome of the bargaining process between the authority and the merging parties. We first classify mergers according to their effects on competition and then we develop hypotheses on the effects that remedies are supposed to achieve depending on the merger’s competitive outcome. We isolate several stylized facts. First, we find that remedies were not always appropriately imposed. Second, the market seems to be able to predict remedies’ effectiveness when applied in phase I. Third, the market also seems able to produce a good prior to phase II’s clearances and prohibitions, but not to remedies. This can be due either to a measurement problem or related to the increased merging firms’ bargaining power during the second phase of the merger review.
    Keywords: Merger Control, Remedies, European Commission, Event Studies
    JEL: L4 K21 C12 C13
    Date: 2006–01
  9. By: Jens Høj; Michael Wise
    Abstract: Over the past decade, French economic growth has been insufficient to bring down high and persistent unemployment. Available cross-country evidence suggests that enhancing competition is an important means to improve economic performance. France is catching up with best practice in competition policy reform. However, other policy considerations often hamper the emergence of effective competition. Relatively weak competitive pressures remain in a number of sectors, particularly in sheltered service industries. Restrictions on competition reduce productivity growth and hinder job creation in regulated sectors. Policy must focus on giving more weight to overall consumer welfare in the face of opposition from relatively small but vocal special interest groups. This paper discusses reforms that would increase competition by: i) strengthening institutions and better clarifying their responsibilities with respect to competition enforcement; ii) reinforcing the ability of sector regulators to improve non discriminatory third party access and other aspects of competition in the network industries; iii) abolishing overly prescriptive regulation in the retail sector; and iv) removing unnecessary protection in some professional services. This Working Paper relates to the 2005 OECD Economic Survey of France (
    Keywords: network industries, France, regulatory reforms, competition law, productivity and growth, retail sector, product market competition
    JEL: K21 L11 L16 L33 L43 L81 L9
    Date: 2006–01–04
  10. By: Inderst, Roman; Wey, Christian
    Abstract: We challenge the view that the presence of powerful buyers stifles suppliers' incentives to innovate. Following Katz (1987), we model buyer power as buyers' ability to substitute away from a given supplier and isolate several effects that support the opposite view, namely that the presence of powerful buyers induces a supplier to invest more in cost reduction. In contrast to negotiations with smaller buyers, the outcome of negotiations with large buyers is fully determined by their more valuable alternative supply option. This increases the supplier's incentives to reduce marginal costs, both as the supplier receives a larger fraction of the thereby generated incremental profits and as this makes buyers' alternative supply option less valuable. The latter effect is due to downstream competition between buyers and, as we show, is also stronger the larger and thus the more powerful buyers are.
    Keywords: buyer power; investment incentives; merger
    JEL: D43 L12 L41
    Date: 2005–12
  11. By: Jordi Gual (IESE Business School, University of Navarra, Avenida Pearson 21, 08034 Barcelona, Spain,; Martin Hellwig (Max Planck Institute on Collective Goods, Kurt Schumacher Str. 10, 53110 Bonn, Germany,; Anne Perrot (Conseil de la concurrence, 11 rue de l'Echelle, 75 001 Paris, France,; Michele Polo (IGIER, Università Bocconi, Via Salasco 5, 20136 Milan, Italy,; Patrick Rey (IDEI, University of Toulouse I, 31042 Toulouse Cedex, France,; Klaus Schmidt (Department of Economics, University of Munich, Ludwigstr. 28, 80539 München, Germany,; Rune Stenbacka (Department of Economics, Swedish School of Economics, P.O. Box 479, 00101 Helsinki, Finland,
    Abstract: This report argues in favour of an economics-based approach to Article 82, in a way similar to the reform of Article 81 and merger control. In particular, we support an effects-based rather than a form-based approach to competition policy. Such an approach focuses on the presence of anti-competitive effects that harm consumers, and is based on the examination of each specific case, based on sound economics and grounded on facts.
    Keywords: Competition Policy, Abuse of Market Power, Article 82
    JEL: D4
    Date: 2005–07
  12. By: David Spector
    Abstract: Tying a good produced monopolistically with a complementary good produced in an oligopolistic market in which there is room for collusion can be profitable if some buyers of the oligopoly good have no demand for the monopoly good. The reason is that a tie makes part of the demand in the oligopolistic market out of the reach of the tying firm's rivals, which decreases the profitability of deviating from a collusive agreement. Tying may thus facilitate collusion. It may also allow the tying firm to alter market share allocation in the collusive oligopolistic market.
    Date: 2006
  13. By: KLAUS ABBINK (University of Nottingham); JORDI BRANDTS (Institut d'Anàlisi Econòmica (CSIC), Barcelona)
    Abstract: We study collusive behaviour in experimental duopolies that compete in prices under dynamic demand conditions. In one treatment the demand grows at a constant rate. In the other treatment the demand declines at another constant rate. The rates are chosen so that the evolution of the demand in one case is just the reverse in time than the one for the other case. We use a box-design demand function so that there are no issues of finding and co-ordinating on the collusive price. Contrary to game-theoretic reasoning, our results show that collusion is significantly larger when the demand shrinks than when it grows. We conjecture that the prospect of rapidly declining profit opportunities exerts a disciplining effect on firms that facilitates collusion and discourages deviation.
    Keywords: Laboratory experiments, industrial organisation, oligopoly, price competition, collusion
    JEL: C90 C72 D43 D83 L13
    Date: 2005–02
  14. By: Henrik Orzen (University of Nottingham)
    Abstract: Recent theoretical research on oligopolistic competition suggests that prices may increase when more firms compete in a market. However, this finding is based on comparative-static analyses of static models, which overlook the possibility that sellers may be able to charge supra-competitive prices in a dynamic setting and that this is more likely to be sustained with fewer competitors. Previous laboratory evidence corroborating the comparative-static result was generated using a random matching protocol which retains much of the one-shot character of the theory. In a new experiment we reexamine the number effect in repeated markets and find that duopolists now post substantially higher prices, while average prices in quadropolies remain very similar. As a result, the predicted effect is not observed, and towards the end the reverse effect is observed.
    Keywords: Market Concentration, Experiments, Tacit Collusion
    JEL: C72 C92 D43
    Date: 2005–04
  15. By: Qiu_Hong Wang (Department of Information Systems, National University of Singapore); Kai-Lung Hui (Department of Information Systems, National University of Singapore)
    Abstract: This study relaxes the conventional assumption in the literature of new product introduction that all consumers possess nothing at the beginning of the game. We generalize consumers’ utility function to a market in the presence of an installed base and characterize its specific properties pertaining to various market contexts with different consumer heterogeneity and technology improvement. In such a general setting, we investigate various feasible combinations of timing, pricing and product line strategies that the seller can employ in a two-period game for selling the new product to consumers with different purchase history and heterogeneous preference on product quality. Our subgame-perfect- equilibrium results suggest that other than the upgrade policy, the seller can maximize her profits via intertemporal price discrimination, or delayed introduction, or pooling pricing, depending on the characteristics of market structure and technology improvement. Without the concern about cost, social welfare directly depends on whether the seller can sustain her monopoly power facing the mutual cannibalization between the old and new products and the mutual arbitrage between the heterogeneous consumers.
    Keywords: New product introduction, intertemporal price discrimination, delayed product introduction, installed base, upgrade policy
    JEL: L
    Date: 2005–12–28
  16. By: Argenton, Cédric (Dept. of Economics, Stockholm School of Economics)
    Abstract: We study a model of asymmetric information in which two firms produce given qualities of the same good at possibly different, constant marginal costs. They compete in quantities on a market where buyers only observe the average quality supplied. The model is a generalization of the standard Cournot duopoly, which corresponds to the special case where the two qualities are equal. When deciding on its own output, each firm has to take into account its effect not only on market supply but also on the average quality. When the quality differential is large, the firms’ output levels are not always strategic substitutes, and there can be no, one, or two pure-strategy equilibria. When both firms are active in equilibrium, the high-cost firm's market share is bigger than the low-cost firm's if the quality differential is sufficiently large to compensate for the former’s cost handicap. This effect may lead consumers to prefer two producers of unequal qualities to two identical firms producing the (unweighted) average quality.
    Keywords: Cournot competition; quality; duopoly; asymmetric information; Nash equilibrium
    JEL: D43 D82 L13 L15
    Date: 2005–12–30
  17. By: Ferrett, Ben; Wooton, Ian
    Abstract: Oligopoly is empirically prevalent in the industries where MNEs operate and national governments compete with fiscal inducements for their FDI projects. Despite this, existing formal treatments of fiscal competition generally focus on the polar cases of perfect competition and monopoly. We consider the competition between two potential host governments to attract the investment of both firms in a duopolistic industry. Competition by identical countries for a monopoly firm's investment is known to result in a 'race to the bottom' where all rents are captured by the firm through subsidies. We demonstrate that with two firms, both are taxed in equilibrium, despite the explicit non-cooperation between governments. When countries differ in size, a single firm will be attracted to the larger market. We explore the conditions under which both firms in the duopoly co-locate and when each nation attracts a firm in equilibrium. Our results are consistent with the observed stability of effective corporate tax rates in the face of ongoing globalization, and our analysis readily generalizes to many specifications with oligopoly in the product markets.
    Keywords: foreign direct investment; market size asymmetries; oligopoly; tax competition
    JEL: F12 F23 H25 H73
    Date: 2005–12
  18. By: Stephen Martin (Department of Economics, Krannert School of Management, Purdue University)
    Abstract: The earliest U.S. antitrust laws were adopted after technological changes — most importantly, the development of a national railway network — made the U.S. political union a single economic market. They were adopted with the stated, and no doubt largely sincere, purposes of preventing collusion and strategic entry-deterring behavior. Early application of the antitrust laws relied on a rule of competition to determine whether business conduct was or was not permitted. This has evolved into an explicit evaluation of the impact of businesses practices on consumer welfare, conceived of and measured in an economic sense. EU competition policy was adopted in advance of economic integration. It differed sharply from the traditional policies of the original EC6 member states toward business behavior. It was adopted with the stated, and most likely sincere, purpose of furthering economic integration, and to this end prohibited practices that were seen as distorting competition. Early applications of competition policy, particularly in the European Coal and Steel Community, may have had perverse effects. There are indications of an evolution towards an economic performance standard in the European Union as well.
    Keywords: US antitrust policy, EU competition policy, European Union, Economic governance, regulation
    JEL: L40 L41 L42 L51 L97 L98
    Date: 2005–12
  19. By: Epictetus E. Patalinghug (U.P. College of Business Administration); Gilberto M. Llanto (Philippine Institute for Development Studies)
    Abstract: Following the global trend in using private sector participation in infrastructure financing and development, the Philippines has largely utilized privatization as a major approach to the development of infrastructure, particularly in power, water, transport, and telecommunications sectors. To provide a legal framework for private sector participation in infrastructure projects, Congress passed the build-operate-transfer (BOT)law, as amended, to expand the scope of private sector involvement in infrastructure provision. Regulatory reform has accompanied the effort to ensure operational efficiency and competitive provision. This paper intends to review and evaluate the regulatory framework that has been established or suggested for the Philippines, focusing on the power and telecommunications sectors. This study will primarily evaluate the existing regulatory framework. It aims to identify issues and gaps, paying particular attention on the competition-related provisions as well as the institutional capacities of regulatory institutions.
    Keywords: telecommunications, competition policy, BOT scheme, private sector participation, infrastructure development,regulatory framework,power sector,Electric Power Industry Reform Act (EPIRA), voice over internet protocol (VOIP),
    JEL: L96 F12
    Date: 2005–08
  20. By: Joseph Francois; Ian Wooton
    Abstract: We examine interaction between goods trade and market power in domestic trade and distribution sectors. Theory suggests a linkage between service-sector competition and goods trade, one supported by econometrics involving imports of 22 OECD countries vis-à-vis 69 exporters. This points to linkages between market access conditions for goods and the structure of the service sector. Competition in services affects the volume of goods trade. Additionally, because of interaction between tariffs and competition, the market structure of the domestic service sector becomes increasingly important as tariffs are reduced. Also, empirically service competition apparently matters most for exporters in smaller, poorer countries.
    Keywords: market access, services trade, trade liberalization, competition policy, imperfect competition, GATS
    JEL: F12 F13 F23
    Date: 2005–12–15
  21. By: Lalive, Rafael; Schmutzler, Armin
    Abstract: This paper studies the effects of introducing competition for local passenger railway markets in the German state of Baden-Württemberg. We compare the evolution of the frequency of service on lines that were exposed to competition for the market and lines that were not. Our results suggest that the competitively procured lines enjoyed a stronger growth of the frequency of service than those that were not procured competitively, even after controlling for various line characteristics that might have an independent influence on the frequency of service. Our results further suggest that the effects of competition may depend strongly on the operator.
    Keywords: competition for the market; liberalization; passenger railways; procurement auctions
    JEL: D43 D44 R48
    Date: 2005–12
  22. By: Annette Bongardt (DEGEI, Universidade de Aveiro)
    Abstract: This paper focuses on competition policy in the European Union from an economic, micro-governance point of view. It analyses recent developments in economic governance in the field of the common competition policy, which had for a long time been the exclusive competence of the European Commission (Community method), notably the nature and governance implications of recent developments associated with single market integration, the 5th EU enlargement, and the workload backlog of the Commission. The common competition policy has been subject to various changes against the background of increasing market integration and the expansion of the single market (for instance, the European merger regulation and the liberalisation of network industries, regulated at the national level), most recently by the new institutional framework (EC regulation 1/2003 by the EU Council) which entered into force on the day of the EU’s fifth enlargement on 1 May 2004 and which implies the direct and parallel application of EU anti-trust laws by national competition authorities (NCA).These developments in terms of the economic governance of competition policy render it important to analyse the competences of NCAs with respect to the European Commission but also in regard to each other and to sectoral national regulators. The paper concludes that although the single market and competition policy had looked profoundly Europeanised in the Community sphere, single market integration has not led to parallel centralisation at the Community level but to decentralisation and that challenges as to legal uncertainty and consistency of application remain to be resolved.
    Keywords: EU Competition Policy, European Union, Economic Governance, Regulation, European Union, Portugal
    JEL: L41 L42 L97 L98
    Date: 2005–12
  23. By: Jeroen Hinloopen (Faculty of Economics and Econometrics, Universiteit van Amsterdam)
    Abstract: Intuitively, extending the period of repose for price fixing agreements enhances the effectiveness of competition policy enforcement. This paper proofs this intuition wrong. As extending the repose period reduces cartel members' defection payoff while it leaves unaltered expected compliance profits, it induces cartels to be more stable internally.
    Keywords: Cartel stability; detection probabilities; statue of limitation.
    JEL: K21 K42 L12 L41
    Date: 2005–11–14
  24. By: Alejandro Corvalán; Pablo Serra
    Abstract: This work analyses those industries in which the role of salespersons is to poach clients from rival firms. This is done with a three-stage model where firms decide successively if they enter the market or not, what price to set, and how many salespersons they hire. It is assumed that each consumer is obliged to contract a service unit, but can do so with any firm. The firms can freely choose the price, but must charge same rates to all clients. Under these assumptions it is shown that the possibility of poaching rivals’ clients reduces the intensity of price competition.
    Date: 2005
  25. By: Samuel Cruz Alves Pereira (Faculdade de Economia, Universidade do Porto); Pedro Cosme Costa Vieira (Faculdade de Economia, Universidade do Porto)
    Abstract: One important issue in firms’ governance is how to create incentives so that activity centres can become more efficient. In this paper, we first introduce an agency contract where the salary of the manager of an activity centre that produces an intermediate product is dependent of its performance. Secondly, we add competition within the organization. This latter point is new in the literature. We then develop a "static analysis" comparing a firm that has only one activity centre producing an intermediate product with another firm that has two activity centres producing the same intermediate product, in a context where the technology manifests increasing returns to scale. We conclude that the introduction of internal competition makes the firm globally more efficient, even though it cannot fully explore the existence of increasing returns to scale.
    Keywords: Activity centres, internal market power, firm efficiency
    JEL: M11 M41
    Date: 2006–01
  26. By: Macauley, Molly (Resources For the Future); Hamilton, Bruce
    Abstract: We examine determinants of the nearly 30 percent increase in the average age of domestically produced, registered automobiles since the mid-1960s. We find that very little of the increase in car longevity is attributable to improvements in the inherent durability of cars. Rather, we find that the temporal pattern of longevity improvement is highly correlated with the level of market concentration in the auto industry. In particular, we argue that the arrival of competition in the industry led to an increase in longevity largely by forcing a reduction in the price of auto maintenance and repair, which in turn induced consumers to maintain their cars into older age.
  27. By: V. Joseph Hotz; Mo Xiao
    Abstract: We examine the incentives for firms to voluntarily disclose otherwise private information about quality attributes of differentiated products. In particular, we focus on the case of differentiated products with multiple attributes and consumers that are heterogeneous in their preferences over these attributes. We show that there exist certain configurations of consumer preferences under which a firm producing a high-quality product, even with zero costs of disclosure, may choose not to reveal the quality of its product. This failure of firms to voluntarily disclose the quality of their products will arise when providing consumers with more information results in more elastic demands for these products, which, in turn, triggers more intensive price competition and leads to lower prices and profits for all firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.
    JEL: L15 L5
    Date: 2006–01
  28. By: Beck, Jonathan; Grajek, Michal; Wey, Christian
    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 the long-run adoption level 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 labour-saving technology such as barcode-scanning is more intense. We do not find a significant impact of employment protection legislation.
    Keywords: hypermarkets; IT diffusion; retail competition
    JEL: L5 L81 O33
    Date: 2005–12
  29. By: Brennan, Timothy (Resources For the Future)
    Abstract: Residential consumers remain reluctant to choose new electricity suppliers. Even the most successful jurisdictions, four U.S. states and other countries, have had to adopt extensive consumer education procedures that serve largely to confirm that choosing electricity suppliers is daunting. Electricity is not unique in this respect; numerous studies find that consumers are generally reluctant to switch brands, even when they are well-informed about product characteristics. If consumers prefer not to choose, opening regulated markets can reduce welfare, even for some consumers who do switch, as the incumbent can exploit this preference by raising price above the formerly regulated level. Policies to open markets might be successful even if limited to industrial and commercial customers, with residential prices based on those in nominally competitive wholesale markets.
    Keywords: electricity markets, deregulation, consumer choice, residential markets
    JEL: L94 L51 D11 B40
  30. By: Domenico SCALERA; Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: Increasing premiums, increasing claims and decreasing profits are three striking facts associated in some European countries to motor insurance liberalization of 1990's. In this paper, we argue that these phenomena may be considered not a consequence of collusion or other misapplications of deregulation but rather an effect of the impact of liberalization on the companies’ optimal choices. In particular, by extending the Salop-Economides model, we show that price deregulation involves decreasing investments in monitoring and increasing compensation costs. Therefore, the transition from regulation to competition can yield prices and profits moving in either direction and possibly opposite directions.
    Keywords: motor insurance, regulation, spatial models
    JEL: G22 L11 L50
    Date: 2004–03
  31. By: Fabio Panetta (Banca d'Italia); Fabiano Schivardi (Banca d'Italia); Matthew Shum (Johns Hopkins University)
    Abstract: We examine the informational effects of M&As by investigating whether bank mergers improve banks’ ability to screen borrowers. By exploiting a dataset in which we observe a measure of a borrower’s default risk that the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between interest rates and individual default risk: after a merger, risky borrowers experience an increase in the interest rate, while non-risky borrowers enjoy lower interest rates. This finding is robust with respect to a series of alternative explanations. Further results suggest that these information benets derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties.
    Keywords: Mergers, asymmetric information, banking
    JEL: G21 L15
    Date: 2004–10
  32. By: Stefan Behringer (Economics Department, Frankfurt University)
    Abstract: This paper investigates the effect of spillovers in a model of endogenous technical change resulting from learning or network effects on the existence of a lower bound to market concentration.
    Keywords: Market Structure, spillovers, endogenous technical change
    JEL: L10 D43 D21
    Date: 2005–11
  33. By: Jean-Pascal Bénassy
    Abstract: Are prices less sticky when markets are more competitive? Our intuition would naturally lead us to give an affirmative answer to that question. But we first show that DSGE models with staggered price or wage contracts have actually the opposite and paradoxical property, namely that price stickiness is an increasing function of competitiveness. To eliminate this paradox, we next study a model where monopolistic competitors choose prices optimally subject to a cost of changing prices as in Rotemberg (1982a,b). For a given cost function, we find the more intuitive result that more competitiveness leads to more flexible prices.
    Date: 2005
  34. By: Sean Dougherty; Richard Herd
    Abstract: This paper assesses the progress of China’s transition toward a market economy by examining the structure of ownership, productivity, and profitability, as well as the concentration of production across firms, industries and regions. It does this by analyzing a database of firm microdata of the quarter of a million industrial companies in operation during the 1998–2003 period. Results show that the private sector now accounts for more than half of industrial output, compared with barely more than a quarter in 1998, and operates much more efficiently than the public sector. Higher productivity has fed through to profitability, motivating greater regional specialization of production. These changes are consistent with what would be expected in a market-based economy, and suggests that reforms are making rapid progress. This Working Paper relates to the 2005 OECD Economic Survey of China ( <P>La chute rapide des barrières et la concentration croissante de l’activité économique Ce document examine les progrès réalisés par la Chine dans la transition vers une économie de marché en étudiant plus particulièrement la structure de la propriété, la productivité et la rentabilité, ainsi que la concentration de la production à l'échelle des entreprises, des secteurs d'activité et des régions. Pour cela, il analyse une base de microdonnées portant sur 250 000 entreprises industrielles qui étaient en activité au cours de la période 1998-2003. Les résultats montrent que le secteur privé représente désormais plus de la moitié de la production industrielle, contre à peine plus d'un quart en 1998, et qu'il est bien plus efficace que le secteur public. Par ailleurs, l'accroissement de la productivité et ses effets positifs sur la rentabilité de l'activité économique ont entraîné une plus grande spécialisation régionale de la production. Ces évolutions, conformes à ce que l'on peut attendre dans une économie fondée sur le jeu du marché, sont sans doute le signe que les réformes progressent rapidement. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la Chine, 2005 (
    Keywords: productivity, productivité, transition, transition, restructuring, restructuration, private sector, secteur privé, firm microdata, micro-données d'entreprise, regional concentration, concentration régionale, market economy, économie de marché
    JEL: D4 F15 L11 O12 P23
    Date: 2005–12–16
  35. By: Yuanyuan Peng (Department of Economics, Florida International University)
    Abstract: This paper proposes an additional determininant of firm survival. Based on a detailed examination of firm survival in the British automobile industry between 1895 and 1970, we conclude that firm’s selection of submarket-defined by quality level-influenced survival. In contrast to findings for the US automobile industry, there is no evidence of first-mover advantage in the market as a whole. However, we do find evidence of first-mover advantage after conditioning on submarket choice.
    Keywords: firm survival, product differentiation, submarket, product quality
    JEL: L11
    Date: 2006–01
  36. By: Nicola MATTEUCCI
    Abstract: Il presente case-study analizza l'evoluzione della pay-TV in Italia. Dopo aver ripercorso le fasi evolutive della sua struttura di mercato, nell'alternanza tra monopolio e duopolio, vengono esaminate le strategie competitive degli operatori, focalizzando l'attenzione sul ruolo giocato dall'accumulo dei diritti televisivi premium e sul loro potenziale di deterrenza e chiusura verticale del mercato. Successivamente vengono esaminati i principali interventi delle autorità antitrust nazionali e comunitarie nella pay-TV (Provv. AGCM n. 8386 del 2000, n. 10716 del 2002, Comm UE n. COMP/M.2876) e ne vengono discusse la logica e l'efficacia in termini di salvaguardia della contendibilità del mercato e del benessere del consumatore, anche alla luce della letteratura teorica di riferimento. Inoltre, attraverso la valutazione del welfare degli assetti di mercato positivi (realizzati) e di quelli normativi (auspicabili), si discutono i punti di maggiore problematicita' del monopolio attualmente vigente nella pay-TV italiana. In sintesi, l'intervento antitrust sin dall'inizio ha lucidamente stilizzato le fondamentali dinamiche competitive della pay-TV italiana, evidenziando il ruolo dei diritti televisivi. Tuttavia, l'analisi antitrust sembra deficitaria nella valutazione delle dinamiche economico-finanziarie degli operatori le quali, anzichŠ essere imputabili all'insostenibilita' della configurazione di mercato duopolistica, sono piuttosto la conseguenza dell'inadeguatezza dei modelli strategici degli operatori. Inoltre, le soluzioni adottate (autorizzazione del merger con condizioni di tipo comportamentale) non sembrano efficaci nel contesto italiano. In esso, per la mancanza di piattaforme di trasmissione concorrenti, il neo-monopolista satellitare fronteggia un basso grado di competizione effettiva e potenziale e la soluzione piu' appropriata sembra essere ancora quella classica e strutturale (proibizione del merger). Piu' in generale, vi Š un'elevata probabilita' che le vicende recenti della pay-TV, assieme alle irrisolte carenze normativo-regolamentari dell'intero settore radiotelevisivo, indirizzino lo sviluppo della TV digitale italiana verso traiettorie tecno-economiche subottimali e mortifichino il potenziale di pluralismo della TV digitale.
    Keywords: TV digitale, diritti televisivi, pay-TV satellitare, verticale forecslosure
    JEL: K21 L41 L42 L82
    Date: 2004–07
  37. By: Sadowski, B.M. (Ecis, Technische Universiteit Eindhoven); Straathof, B. (Ecis, Technische Universiteit Eindhoven)
    Keywords: VoIP
    Date: 2005
  38. By: Matthews, Kent (Cardiff Business School); Murinde, Victor; Zhao, Tianshu
    Abstract: We aim to undertake an empirical assessment of the competitiveness and market contestability of UK banks / financial institutions [before and after some major regulatory regime changes ????]. We specify a model, which consists of reduced form bank revenue equations. We use a non-structural estimation technique to evaluate the elasticity of total revenues with respect to changes in input prices. Specifically, we estimate and test the model on a panel of xx banks / financial institutions for the period 19xx-2002
    Keywords: Competitive conditions in banking; market contestability; UK
    JEL: G21 D24
    Date: 2006–01
  39. By: Donald S. Siegel (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA); Kenneth L. Simons (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: Studies of the effects of mergers and acquisitions focus on a single unit of analysis: firms, plants, or workers. In contrast, we model these events as transactions that simultaneously have cross-levels effects. Based on the theory of human capital, we generate a set of predictions regarding the antecedents and consequences of firm, plant, and worker turnover. Our empirical analysis is based on longitudinal, linked employer-employee data for virtually the entire population of Swedish manufacturing firms and employees for the period 1985-1998. These data allow us to assess the effects of mergers and acquisitions on firm performance, plant productivity, levels of employment, and compensation. Consistent with human capital theory, we find that mergers and acquisitions lead to improvements in firm performance and plant productivity, although they also result in the downsizing of establishments and firms. These transactions also appear to enhance the careers of workers because they provide a mechanism for improving the sorting and matching or workers and managers to firms and industries that best suit their skills.
    JEL: G34 D24 C81
    Date: 2006–01
  40. By: Silvia Fabiani (Banca d'Italia); Angela Gattulli (Banca d'Italia); Roberto Sabbatini (Banca d'Italia)
    Abstract: This study examines price setting behaviour of Italian firms on the basis of the results of a survey conducted by Banca d’Italia in early 2003 on a sample of around 350 firms belonging to all economic sectors. Prices are mostly fixed following standard mark-up rules, although customer-specific characteristics have a role, in particular in manufacturing and services where price discrimination across customers matters. Rival prices mostly affect price-setting strategies in industrial firms. In reviewing their prices, firms follow either statedependent rules or a combination of time and state-dependent ones. Concerning the frequency of price adjustments, a considerable degree of stickiness emerges both at the stage in which firms evaluate their pricing strategies and the stage in which they actually implement the price change. In 2002 most firms changed their price only once. Three alternative explanations of nominal rigidity are ranked highest by the firms interviewed: explicit contracts, tacit collusive behaviour and the perception of the temporary nature of the shock. Prices respond asymmetrically to shocks, depending on the direction of the adjustment (positive vs negative) and the source of the shock (demand vs supply). Real rigidities – captured by the degree of market competition, customers’ search costs, the sensitivity of profits to changes in demand – play an important role in determining this asymmetry. Moreover, whereas cost shocks impact more when prices have to be raised than when they have to be reduced, demand decreases are more likely to induce a price change than demand increases.
    Keywords: nominal rigidity, real rigidity, price-setting, inflation persistence, survey data.
    JEL: E30 D40
    Date: 2004–07

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