nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒03‒05
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Profitability of Horizontal Mergers in Trigger Strategy Game By Berardino Cesi
  3. Skewed Pricing in Two-Sided Markets: An IO approach By Wilko Bolt; Alexander F Tieman
  5. Social Welfare and Cost Recovery in Two-Sided Markets By Wilko Bolt; Alexander F. Tieman
  6. Bank Efficiency and Competition in Low-Income Countries: The Case of Uganda By David Hauner; Shanaka J. Peiris
  7. Regulatory Capture in Banking By Daniel C. Hardy
  8. Scale Economies with Regard to Price Adjustment Costs and the Speed of Price Adjustment in Australian Manufacturing By Michael Olive
  9. Dynamic Firm Regulation with Endogenous Profit-Sharing By Michele Moretto; Paola Valbonesi
  10. Why haven't price-cost margins decreased with globalization ? By Hervé Boulhol
  11. Market failures and government policies in gas markets By Machiel Mulder; Gijsbert Zwart
  12. Government involvement in liberalised gas markets: A welfare-economic analysis of the Dutch gas-depletion policy By Machiel Mulder; Gijsbert Zwart
  13. The Dynamics of Firms' Entry and Diversification: A Bayesian Panel Probit Approach. A Cross-country analysis By Gianni Amisano; Maria Letizia Giorgetti
  14. ‘Unfair’ Discrimination in Two-sided Peering? Evidence from LINX By Alessio D’Ignazio; Emanuele Giovannetti

  1. By: Berardino Cesi
    Abstract: It is shown that, in a dynamic competition, an exogenous horizontal merger is profitable even if a small share of active firms merge. However, each firm has incentive to remain outside the merger because it would benefit more (Insiders’dilemma). We show that in an infinite repeated game in which the firms use trigger strategies an exogenous bilateral merger can be profitable and the Insiders’dilemma is mitigated.
    Keywords: Horizontal mergers; Insiders’ dilemma; trigger strategy
    JEL: C73 L13 D43 G34 L41
    Date: 2006–01
  2. By: Roberto Hernan; Praveen Kujal
    Abstract: Incentives to vertically integrate are studied in an industry where downstream firms are vertically differentiated. Vertical integration by one of the firms increases production costs for the rival. Increased production costs impact quality investment both by the integrated firm and the unintegrated rival. A firm, integrating first, always produces the high quality good and earns higher profits. Quality investment by both firms decreases under any (vertical integration) scenario and competition among downstream firms is softened. A fully integrated industry, with increased product differentiation, is observed in equilibrium. Due to increase in firm profits, social welfare under this structure is greater than under no integration.
    Date: 2006–02
  3. By: Wilko Bolt (De Nederlandsche Bank); Alexander F Tieman (International Monetary Fund)
    Date: 2005–09–03
  4. By: María Fernanda Viecens
    Abstract: In this paper we construct a simple model of platform price competition with two main novel features. First, platforms endogenously decide the quality of their `access service' and second, each group exhibits preferences not only about the number of agents in the opposite group, but also about their type or quality. Additionally, sellers also care about the type of agents in their own group. Our interest is to examine the set of conditions under which, in spite of the network externalities, more than one plaftorm coexist in equilibrium. We show that when quality is endogenously determined by the choices of agents these platforms could be asymmetric.
    Date: 2006–02
  5. By: Wilko Bolt; Alexander F. Tieman
    Keywords: Markets , Price structures , Tariffs , Economic models ,
    Date: 2005–10–17
  6. By: David Hauner; Shanaka J. Peiris
    Date: 2006–01–09
  7. By: Daniel C. Hardy
    Keywords: Banking , Bank regulations , Capital , Competition ,
    Date: 2006–02–08
  8. By: Michael Olive (Department of Economics, Macquarie University)
    Abstract: The standard quadratic price adjustment cost function makes no allowance for firm size or for scale economies. Incorporating quadratic price adjustment costs into the profit function, a firm's speed of price adjustment is both shown to be a positive/negative function of its size when firms have scale economies/diseconomies with regard to these costs and to be a negative function of market power. The intuitive explanation is that large firms that can defray this type of cost have less reason to slow price adjustment, while firms with market power are better able to offset price adjustment costs by slowing their speed of price adjustment. These results are used to derive an industry error correction model of pricing where the speed of price adjustment is a weighted average of the firm effects. Estimation of the model is carried out on data obtained from nine two-digit Australian manufacturing industries during the period 1994:3 to 2002:2. The empirical results suggest that the speed of price adjustment is positively related to the size of firms within an industry and negatively related to industry concentration. Given that these variables do not change rapidly over time, they are likely to have a steadying influence on the speed of price adjustment at an aggregate level in the face of changes to monetary and fiscal policy.
    Keywords: Speed of price adjustment, adjustment costs, Australian manufacturing
    JEL: D21 L11 L13 L16 L60
    Date: 2005–05
  9. By: Michele Moretto; Paola Valbonesi
    Abstract: To avoid the extremely high profit levels found in recent experiences with price cap regulation, some regulators have applied a profit-sharing (PS) rule that revises prices to the benefit of consumers. This paper investigates the conditions under which a regulator can implement such a PS scheme, having contract closure as outside option if the firm's profits are excessive. We determine both the level of profits that triggers the PS and the consequent price adjustment endogenously. We then explore the PS dynamic efficiency in the repeated regulator-firm relationship.
  10. By: Hervé Boulhol (IXIS CIB et CES-TEAM)
    Abstract: This study analyzes the determinants of price-cost margins (PCMs) for OECD countries between 1970-2003. The main objective is to quantify the pro- competitive effect of international trade and understand why, despite trade liberalization, PCMs have not fallen overall. An increase of one percentage point in the import penetration ratio is estimated to lower the PCM by around 0,005 : on average, imports contributed to a large decrease of 0,042 in the PCM. In addition, domestic product market deregulation has reduced PCMs. However, these effects are countervailed by the impacts of exports, financial deepening and disinflation. Union participation seems negatively related to PCMs.
    Keywords: Price-cost margin, pro-competitive effect, wage bargaining, dynamic panel.
    JEL: F12 F16 L11 L13 L60 J50
    Date: 2005–08
  11. By: Machiel Mulder; Gijsbert Zwart
    Abstract: This memorandum analyses the fundamental characteristics of the natural gas market and its consequences for government policies. In the past, the European gas market was dominated by state-owned monopolists but since the start of the liberalisation, privatisation and re-regulation in the early 1990s, the market has fundamentally changed. Nevertheless, governments are still involved in the gas industry, not only in gas exporting countries such as Russia, but also in a country like the Netherlands where the government has imposed a cap on production from the main gas field (Groningen) as well as owns shares in the main wholesale trader (Gasunie Trade & Supply) which has the obligation to accept all gas offered by producers on the small fields. In the main report of this project we present a cost-benefit analysis of the Dutch gas-depletion policy. In this memorandum we explore the natural-gas market more broadly, looking for factors why government intervention may be needed using the welfare-economic approach according to which government intervention should be based on the presence of market failures. After a brief description of the main characteristics of the gas industry, we systematically analyse sources of market failures, such as geopolitical factors, economies of scale and externalities, and finally go into the question which policy options may be chosen to address those market failures.
    Keywords: gas depletion; natural resources; market failures; government policy
    JEL: Q3 Q4 D6 L5
    Date: 2006–02
  12. By: Machiel Mulder; Gijsbert Zwart
    Abstract: This report analyses the welfare effects of two major components of the Dutch gas-depletion policy: the offtake guarantee for small-fields gas and the cap on production from the Groningen field. We conclude that the benefits of offtake guarantee currently may outweigh the costs, but a further development of the gas market would reverse this picture. The cost of the offtake guarantee is that it gives operators reduced incentives to respond optimally to short-term changes in market conditions compared to a competitive market. Regarding the cap on Groningen (42.5 bcm per year), we find that this measure is inefficient when the cap is binding, i.e. restricting the production from the Groningen field. The costs of capping Groningen production follow from shifting returns to the future. The benefits of this measures consist of slightly positive effects on small-fields production and positive benefits for security of supply.
    Keywords: gas depletion; gas market; gas policy; competition; cost-benefit analysis
    JEL: L3 L5 L95 Q3 Q4
    Date: 2006–02
  13. By: Gianni Amisano; Maria Letizia Giorgetti
    Abstract: In this paper we analyze entry dynamics in new submarkets of pharmaceutical companies. In particular we study entry decisions at time t in a new submarket, conditioned on the entrance in a new submarket at time t-1. This model allows us to connect with the flourishing literature about the prominent role of submarkets, (Klepper and Thompson, 2002, Mitchell, 2000 and Sutton,1998) in explaining diversification and entry choices. Our analysis is based on a Bayesian approach which allows us to properly account for heterogeneity among firms. We try to manage the inclusion among regressors of non strictly exogenous variables, which can be correlated with unobserved heterogeneity,(Honoré and Kyriazidou, 2000, Honoré and Lewbel, 2002, Arellano and Carrasco,2003, Wooldridge, 2003).
  14. By: Alessio D’Ignazio; Emanuele Giovannetti
    Abstract: Does asymmetry between Internet Providers affect the “fairness” of their interconnection contracts? While recent game theoretic literature provides contrasting answers to this question, there is a lack of empirical research. We introduce a novel dataset on micro-interconnection policies and provide an econometric analysis of the determinants of peering decisions amongst the Internet Service Providers interconnecting at the London Internet Exchange Point (LINX). Our key result shows that two different metrics, introduced to capture asymmetry, exert opposite effects. Asymmetry in “market size” enhances the quality of the link, while asymmetry in “network centrality” induces quality degradation, hence “unfairer” interconnection conditions.
    Keywords: Internet Peering, Two-sided Markets, Network Industries, Antitrust
    JEL: L14 L86 L96 C81 L40
    Date: 2006–02

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