nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒05‒13
sixteen papers chosen by
Russell Pittman
US Department of Justice

  1. Intertemporal Price Discrimination and Competition By Ralph-C Bayer
  2. Endogenous entry under Bertrand-Edgeworth and Cournot competition with capacity indivisibility By Massimo A. De Francesco
  3. Competitive Mixed Bundling and Consumer Surplus By John Thanassoulis
  4. Network investment and the threat of regulation – preventing monopoly exploitation or infrastructure construction? By Ulrich Blum; Christian Growitsch; Niels Krap
  5. Bayesian-Cournot Competition By Ji-Tian Jeng
  6. Endogenous Communication and Tacit Coordination in Market Entry Games - An explorative experimental study By Andersson, Ola; Carlsson, Hans; Holm, Håkan
  7. Deregulation as a Means to Increase Competition and Productivity By Laura Valkonen
  8. Bargaining Microfoundations for Productivity Dispersion By John Thanassoulis
  9. Partial Equilibrium Analysis in a Market Game:the Strategic Marshallian Cross By Alex Dickson; Roger Hartley
  10. The Impact of Entry and Competition by Open Source Software on Innovation By Bitzer, Jürgen; Schröder, Philipp J.H.
  11. Product Differentiation or Spatial Monopoly? The Market Areas of Austrian Universities in Business Education By Gunther Maier
  12. Issues in the Design of Water Markets By John Freebairn
  13. Scarcity Rents in Car Retailing: Evidence from Inventory Fluctuations at Dealerships By Florian Zettelmeyer; Fiona Scott Morton; Jorge Silva-Risso
  14. Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia By Alexei Karas; William Pyle; Koen Schoors
  15. Power and the Analysis of the Food System By Valeria Sodano
  16. The Effects of Privatization on Efficiency : How Does Privatization Work? By Çaðla Ökten

  1. By: Ralph-C Bayer (School of Economics, University of Adelaide)
    Abstract: In this study we investigate the impact of competition on markets for non-durable goods where intertemporal price discrimination is possible. We develop a simple model of different potential scenarios for intertemporal price discrimination and implement it in a laboratory experiment. We compare the outcomes in monopolies and duopolies. Surprisingly, we find that competition does not necessarily prevent intertemporal price discrimination, as our model predicts. However, competition generally reduces sales prices, but by far less than theory predicts. As expected, competition increases efficiency.
    Keywords: Price Discrimination, Oligopoly, Market Experiments.
    JEL: L12 L13 C91
    Date: 2006–05
  2. By: Massimo A. De Francesco
    Abstract: Strategic market interaction is modelled as a two-stage game where potential entrants choose capacities and active firms compete in prices or quantities. Due to capital indivisibility, the capacity choice is made from a finite grid. In either strategic setting, the equilibrium of the game depends on the size of total demand at a price equal to the minimum average cost. With a sufficiently large market, the long-run competitive price emerges at a subgame-perfect equilibrium of either game. Failing the large market condition, equilibrium outcomes are quite different in the two games (in contrast to Kreps and Scheinkman), and neither game reproduces the competitive equilibrium.
    Keywords: Entry, Bertrand-Edgeworth, Cournot, capacity indivisibility
    JEL: D43 D44 L13
    Date: 2006–05
  3. By: John Thanassoulis
    Abstract: Mixed bundling in imperfectly competitive industries causes some prices to rise and others to fall. This paper studies under what conditions mixed bundling works for or against the consumer interest. We find that if buyers incur firm specific costs or have shop specific tastes then competitive mixed bundling lowers consumer surplus overall and raises profits - the same is true of competitive volume discounts. Competition without these discounts causes all prices to be kept low as larger customers are targeted; with discounts the prices for heavy users drop, but more is extracted from small users. The consumer surplus result is reversed if the differentiation between components as opposed to firms is key.
    Keywords: Bundling, Loyalty Rebates, Volume Discounts, Competitive Price Discrimination
    JEL: L11 L41
    Date: 2006
  4. By: Ulrich Blum; Christian Growitsch; Niels Krap
    Abstract: In summer 2005, the German telecommunication incumbent Deutsche Telekom announced its plans to build a new broadband fibre optics network. Deutsche Telekom decided as precondition for this new network not to be regulated with respect to pricing and third party access. To develop a regulator's strategy that allows investments and prevents monopolistic prices at the same time, we model an incumbent's decision problem under a threat of regulation in a game-theoretical context. The decision whether to invest or not depends on the probability of regulation and its assumed impact on investment returns. Depending on the incumbent's expectation on these parameters, he will decide if the investment is favourable, and which price to best set. This price is below a non-regulated profit maximising price, since the incumbent tries to circumvent regulation. Thus, we show that the mere threat of a regulator's intervention might prevent supernormal profits without actual price regulation. The regulator, on the other hand, can influence both investment decision and the incumbent's price via his signals on regulation probability and price. These signals an be considered optimal, if they simultaneously allow investment and minimize the incumbent's price.
    Keywords: regulation, investment, teleommuniation, network industries
    JEL: L43 L51 L96
    Date: 2006–05
  5. By: Ji-Tian Jeng (Keele University, Department of Economics)
    Abstract: We consider a model of Cournot competition where firms have incomplete information about their rivals’ costs. The equilibrium concept we use is that of Bayesian-Nash equilibrium. Our analysis is particularly novel since we recognise that each firm’s payoff is determined by its strategy choice and the unweighted sum of all firms’ strategy choices. By exploiting this "aggregative structure", we are able to characterise equilibria in a very simple way, and based on this characterisation we develop sufficient conditions under which there is a unique equilibrium. A comparative statics analysis is also carried out.
    Keywords: Aggregative games, replacement function approach, Bayesian-Nash equilibrium.
    JEL: C72 D81
    Date: 2005–02
  6. By: Andersson, Ola (Department of Economics, Lund University); Carlsson, Hans (Department of Economics, Lund University); Holm, Håkan (Department of Economics, Lund University)
    Abstract: This paper explores experimentally the effects of costly communication possibilities in market entry games. It is shown that these effects depend on whether entry costs are symmetric or asymmetric. In the former, but not the latter case, communication possibilities increase coordination success substantially and are likely to generate inferior outcomes for consumers. Furthermore, cost asymmetries provide a tacit coordination cue that is robust to changes in the game and is used by experienced players as a substitute to communication. It is also shown that although communication opens up for aggressive market domination strategies, such strategies are not used often successful.
    Keywords: Communication; Market Entry; Coordination
    JEL: C72 C91 D43 K21 L41
    Date: 2006–05–03
  7. By: Laura Valkonen
    Keywords: deregulation, competition, productivity, entry
    JEL: L51 D21 O30 K23 L80
    Date: 2006–05–05
  8. By: John Thanassoulis
    Abstract: This paper analyses the implications of bargaining between buyers and sellers on the competitive outcome in a homogeneous good industry. Bargaining creates a competitive equilibrium in which some inefficient sellers coexist with efficient ones leading to productivity dispersion. Rival cost uncertainty then creates an endogenous distribution of productivities which shrinks if rival numbers grow - exactly paralleling current empirical findings. The ability to bargain results in list price dispersion but transaction price uniformity. The bargaining models is not observationally equivalent to Bertrand pricing with product differentiation as positive mark-ups are predicted as idiosyncratic seller cost shocks become small. This and other predictions of the baragining model of competition are assessed against the empirical evidence. The insights are robust to search costs with a nonsequential search stratgegy where a pure strategy (no sales) price equilibrium is found. Further, the results extend to markets without bargaining if sellers post price matching guarantees
    Keywords: Bargaining, List Prices, Transaction Prices, Price-matching Guarantees, Productivity Dispersion, Trade Liberalization.
    JEL: D24 D43 L11 F12
    Date: 2006
  9. By: Alex Dickson (Keele University, Department of Economics); Roger Hartley (Keele University, Department of Economics)
    Abstract: We show how non-price-taking behavior by agents in partial equilibrium can be analyzed using strategic versions of Marshallian supply and demand curves. There is a Nash equilibrium of a two-good, strategic market game at a given price if and only if the strategic supply and demand curves intersect at that price. This result allows us to prove new existence and uniqueness results for such games, which have previously been obtained only by imposing somewhat restrictive assumptions such as symmetry on each side of the market. It also enables us to show that many conventional comparative statics results of Marshallian analysis survive strategic play by buyers and sellers. Finally, we show that price manipulation in this game always has the effect of reducing supply and demand and that thick markets are almost competitive.
    Keywords: Strategic Market Game, Imperfect Competition, Marshallian Cross
    JEL: C72 D43 D50
    Date: 2004–09
  10. By: Bitzer, Jürgen (Free University, Berlin); Schröder, Philipp J.H. (Department of Organisation and Management, Aarhus School of Business)
    Abstract: No abstract
    Keywords: No keywords;
    Date: 2005–12–01
  11. By: Gunther Maier
    Date: 2006
  12. By: John Freebairn (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: Developing the institutional details for markets which will improve the allocation of scarce water as proposed in recent government initiatives is still a work in progress, and the designers face many challenges. Differences in the relevant market time interval, the important effects of geography on costs, and differences in the forms and extent of market failures suggests a system of three property rights rather than a single property right system. Specifically, it is proposed that there be a market for water at source, for water delivery, and a water use licence to capture differences in external costs. For water at source, a dual system of water entitlements with different levels of supply security is proposed. The public good nature of most benefits provided by environmental flows requires direct government intervention informed by ecological assessments and nonmarket valuation of these services. Water treatment and delivery infrastructure costs should reflect at least operating costs and scarcity rents when capacity constraints are reached. The importance of natural monopoly calls for regulatory oversight over infrastructure fees. A system of water use licences based on one of regulations, taxes or tradeable permits is proposed to internalize the different regional and water use external costs of water use.
    Date: 2005–12
  13. By: Florian Zettelmeyer; Fiona Scott Morton; Jorge Silva-Risso
    Abstract: Price variation for identical cars at the same dealership is commonly assumed to arise because dealers with market power are able to price discriminate among their customers. In this paper we show that while price discrimination may be one element of price variation, price variation also arises from inventory fluctuations. Inventory fluctuations create scarcity rents for cars that are in short supply. The price variation due to inventory fluctuations thus functions to efficiently allocate particular cars that are in restricted supply to those customers who value them most highly. Our empirical results show that a dealership moving from a situation of inventory shortage to an average inventory level lowers transaction prices by about 1% ceteris paribus, corresponding to 15% of dealers' average per vehicle profit margin or $250 on the average car. Shorter resupply times also decrease transaction prices for cars in high demand. For traditional dealerships, inventory explains 49% of the combined inventory and demographic components of the predicted price. For so-called 'no-haggle' dealerships, the percentage explained by inventory increases to 74%.
    JEL: L0 L1
    Date: 2006–05
  14. By: Alexei Karas; William Pyle; Koen Schoors
    Abstract: In nascent markets with relatively immature institutions, do depositors have the capacity to discipline banks with poor fundamentals? If so, what information specifically guides their response? Using a database from post-communist, pre-deposit-insurance Russia, we present evidence for quantity-based sanctioning of weaker banks by both firms and households, particularly after the 1998 financial crisis. More notably, the discipline that we observe is surprisingly sophisticated. Specifically, our evidence is consistent with the proposition that depositors interpret a bank’s deposit rate and capital as jointly reflecting its subsequent stability. In estimating a deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases run into diminishing, and eventually negative, returns in terms of deposit attraction.
    Keywords: banking, market discipline
    JEL: G21 O16 P2
    Date: 2006–07
  15. By: Valeria Sodano
    Abstract: This paper stresses that in order to understand the current restructuring processes in the food system it is necessary to take explicitly into account the role of power as a driving organizational force. Agricultural economics, drawing pervasively on the walrasian model, has mainly analysed power in the form of market and bargaining power. Stemming from different definitions of power, the paper focuses on some definitions suggested by the new institutional economics and the network theory, showing their relevance to the analysis of the food market
    Keywords: power, scale-free networks, new institutional economics
    JEL: B52 L66 Z13
    Date: 2006–04
  16. By: Çaðla Ökten
    Date: 2005

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