nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒03‒25
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Incentives to innovate in oligopolies By Paul, BELLEFLAMME; Cecilia, VERGARI
  2. Quality improvement and network externalities By Jean J., GABSWEWICZ
  3. Piracy and competition By Paul, BELLEFLAMME; Pierre, PICARD
  4. A Modified Yardstick Competition Mechanism By Georg Meran; Christian von Hirschhausen
  5. Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges By Christiaan Hogendorn
  6. A Note on Expanding Networks and Monopoly Pricing By Jean J., GABSZEWICZ; Filomena, GARCIA
  7. Newspapers’ market shares and the theory of the circulation spiral By Jean, GABSZEWICZ; P.G., GARELLA; N., SONNAC
  8. Health plan pricing behaviour and managed competition. By Rudy Douven; Erik Schut
  9. A Dynamic Model of Settlement By Thorsten Koeppl; Cyril Monnet; Ted Temzelides
  10. Guess what: It's the Settlements! By Thorsten Koeppl; Cyril Monnet
  11. Heterogeneity of Southern Countries and Southern Intellectual Property Rights Policy By Lapan, Harvey E.; Kim, Jeong-Eon

  1. By: Paul, BELLEFLAMME; Cecilia, VERGARI (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
    Abstract: In the spirit of Arrow (1962), we examine, in an oligopoly model with horizontally differentiated products, how much a firm is willing to pay for a process innovation that it would be the only one to use. We show that different measures of competition (number of firms, degree of product differentiation, Cournot vs Bertrand) affect incentives to innovate in non-monotoic, different, and potentially ways.
    Keywords: innovation; profit incentive; oligopoly; product differentiation
    JEL: L13 O31
    Date: 2006–02–22
  2. By: Jean J., GABSWEWICZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
    Abstract: We analyse the optimal pricing choice of an incumbent firm that sells a good with network externalities and is threatened by the entry of a higher quality variant. In the framework of a vertical differentiation model, we find a necessary and sufficient condition under which quality improvement occurs as a result of this competition.
    Keywords: Vertical product differentiation; network externalities; quality improvement
    JEL: L11 L12 L15
    Date: 2005–01–09
  3. By: Paul, BELLEFLAMME (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Pierre, PICARD
    Abstract: The effects of (private, small-scale) piracy on the pricing behavior of producers of information goods are studied within a unified model of vertical differentiation. Although information goods are assumed to be perfectly differentiated, demands are interdependent because the copying technology exhibits increasing returns to scale. We characterize the Bertrand-Nash equiliria in a duopoly. Comparing equilibrium prices to the prices set by a multiproduct monopolist, we show that competition drives prices up and may lead to price dispersion. Competition reduces total surplus in the short run but provides higher incentives to create in the long run.
    Keywords: Information goods; piracy; copyright; pricing
    JEL: L13 L82 L86 K11 O34
    Date: 2005–09–30
  4. By: Georg Meran; Christian von Hirschhausen
  5. By: Christiaan Hogendorn (Economics Department, Wesleyan University)
    Abstract: In many capacity-intensive industries (e.g. electricity, bandwidth), exchanges allow firms to buy and sell wholesale capacity before selling on the retail market. This allows firms to smooth demand shocks, but it also raises suspicions that exchanges facilitate tacit collusion to limit capacity investment. This paper models investment and exchange in a one-shot game and in a repeated game with tacit collusion. It finds that the presence of the exchange does not reduce total capacity investment, and thus does not raise consumer prices. In fact, the exchange may make it more difficult to sustain tacit collusion.
    Keywords: capacity investment; capacity exchanges; business to business exchanges; tacit collusion
    Date: 2006–01
  6. By: Jean J., GABSZEWICZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Filomena, GARCIA
    Abstract: We obtain explicitly the optimal path of prices for a monopolist operating in a network industry during a finite number of periods. We describe this optimal path as a function of network intensity and horizon length and show that the prices are increasing in time and that, for very low network intensity, or very high horizon length, the monopolist will offer the good at zero price in the initial period.
    Date: 2005–12–15
  7. By: Jean, GABSZEWICZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); P.G., GARELLA; N., SONNAC
    Abstract: We consider a model of daily newspapers’ competition to test the validiity of the so called “theory of the circulation spiral”. According to it, the interaction between the newspapers and the advertising markets drives the newspaper with the smaller readership into a vicious circle, finally leading it to death. In a model with two newspapers, we show that, contrary to this conjecture, the dynamics envisaged by the proposes of the theory, does not always lead to the elimination of one of them.
    Date: 2005–11–14
  8. By: Rudy Douven; Erik Schut
    Abstract: In the Dutch social health insurance scheme, health plans operate in a managed competition framework. Essential features of this framework are risk adjustment, open enrolment and community rating. The objective is to study how health plans determine their community rated premiums. Using a panel data set for all health plans operating in the Dutch social health insurance market over the period 1996-2004, we estimate a premium model to determine which factors explain the price setting behaviour of health plans. Our empirical results indicate that competition did not play a major role in premium setting by health plans. We find that financial stability rather than profit maximisation offers the best explanation for health plan pricing behaviour. The forecast of next year's health-care expenditure by the government and the adjusted forecast by the insurers' association play a major role in health plans' pricing decisions. The introduction of a national health insurance scheme in 2006 urged all citizens to reconsider their health plan choice. The threat of losing customers had a profound impact on health plans' pricing behaviour. In sharp contrast to the period 1996-2005, in 2006 competition seems to play a dominant role in insurers' pricing decisions. Whether this will be a temporary or a lasting phenomenon is hard to predict.
    Keywords: Managed competition; Community rating; Health insurance; Health plan choice
    JEL: I11 I18 L11 D41
    Date: 2006–03
  9. By: Thorsten Koeppl (Department of Economics, Queen's University); Cyril Monnet (DG Research, European Central Bank); Ted Temzelides (Department of Economics, University of Pittsburgh)
    Abstract: We investigate the role of settlement in a dynamic model of a payment system where the ability of participants to perform certain welfare-improving transactions is subject to random and unobservable shocks. In the absence of settlement, the full information first-best allocation cannot be supported due to incentive constraints. In contrast, this allocation is supportable if settlement is introduced. This, however, requires that settlement takes place with a sufficiently high frequency.
    Keywords: Payment Systems, Settlement, Mechanism Design
    JEL: E40 D82 C73
    Date: 2006–02
  10. By: Thorsten Koeppl (Department of Economics, Queen's University); Cyril Monnet (DG Research, European Central Bank)
    Abstract: Exchanges and other trading platforms are often vertically integrated to carry out trading and settlement as one operation. We show that these vertical silos can prevent the full realization of efficincy gains from horizontal consolidation of trading and settlement platforms. Independent of the gains from such consolidation, when costs of settlement are private information, a merger of vertical silos cannot be designed to always ensure efficient trading and settlement after the merger. Furthermore, we show that efficiency can nevertheless be guaranteed either by delegating the operation of settlement platforms to agents or by forcing competition across vertical silos through cross-listings.
    Keywords: Clearing and Settlement, Cross-listing, Vertical and Horizontal Integration, Mechanism Design
    JEL: C73 G20 G34 L22
    Date: 2005–08
  11. By: Lapan, Harvey E.; Kim, Jeong-Eon
    Abstract: We develop a model with one innovating northern firm and heterogeneous southern firms that compete in a final product market. We assume southern firms differ in their intrinsic costs and their ability to adapt technology and study southern incentives to protect intellectual property rights. We find that in a non-cooperative equilibrium governments will resist IPR protection, but collectively southern countries benefit from some protection. We show that countries with more efficient firms prefer higher collective IPR protection than those with less efficient firms. However, given the aggregate level of IPR protection, it is more efficient if the more efficient countries have weaker IPR protection.
    Keywords: Commercial Policy; Intellectual Property Rights protection; Trade; Innovation; Imperfect competition
    JEL: F1 O3
    Date: 2006–03–23

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