nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒06‒10
seventeen papers chosen by
Russell Pittman
US Department of Justice

  1. Roaming the Woods of Regulation: Public Intervention vs Firms Cooperation in the Wholesale International Roaming Market By Fabio Manenti; Paolo Lupi
  2. Local Network Externalities and Market Segmentation By Banerji, A; Dutta, Bhaskar
  3. Partial Multihoming in Two-sided Markets By Rattanasuda Poolsombat; Gianluigi Vernasca
  4. Determinants of Interest Margins in Colombia By Dairo Estrada; Esteban Gómez; Inés Orozco
  5. Exit in globalising industries: the role of international (out)sourcing By Coucke, K.; Sleuwaegen, L.
  6. How Should Competition Policies and Intellectual Property Issues Interact in a Globalised World? A Schumpeterian Perspective By Leonardo Burlamaqui
  7. The Patterns and Determinants of Price Setting in the Belgian Industry By D. CORNILLE; M. DOSSCHE
  8. Teaching competition in professional sports leagues By Stefan Szymanski
  10. The Curse of Windfall Gains in a Non Renewable Resource Oligopoly By Hassan Benchekroun; Ngo Van Long
  11. Finance, Competition, Instability, and Development Microfoundations and Financial Scaffolding of the Economy By Jan Kregel; Leonardo Burlamaqui
  12. Input and Technology Choices in Regulated Industries: Evidence From the Health Care Sector By Daron Acemoglu; Amy Finkelstein
  13. Information Spillovers in the Market for Recorded Music By Ken Hendricks; Alan Sorensen
  14. Optimal Choice of Characteristics for a non-excludable Good By Isabelle Brocas
  15. Collective Action and Post-Communist Enterprise: The Economic Logic of Russia’s Business Associations By William Pyle; ;
  16. Collective Marketing Arrangements for Geographically Differentiated Agricultural Products: Welfare Impacts and Policy Implications By Lence, Sergio H.; Marette, Stéphan; Hayes, Dermot J.; Foster, William
  17. The impact of privatization on the performance of the infrastructure sector : the case of electricity distribution in Latin American countries By Guasch, Jose Luis; Foster, Vivien; Andres, Luis

  1. By: Fabio Manenti (University of Padua); Paolo Lupi (Autorita' per le garanzie nelle comunicazioni (Italy))
    Abstract: Despite a general trend of lower charges for mobile calls, prices for international roaming calls have remained at levels surprisingly high. The apparent reluctance of European mobile network operators to lower roaming tariffs is generating many antitrust concerns. This paper discusses in a two country - two firm framework, the distortions associated with the functioning of the current system governing wholesale international roaming agreements based on Inter Operator Tariffs (IOTs) and the role played by cross border roaming alliances between foreign operators. We describe how competition between roaming operators at the wholesale level is influenced by the adoption of traffic redirection techniques. The paper shows that when mobile operators act un-cooperatively and traffic redirection techniques allow only partial control on traffic flows, competition between roaming operators may not guarantee a reduction in IOTs and, consequently, on retail tariffs. We propose a simple and effective regulatory price cap mechanism to restore efficiency in the wholesale market. When mobile operators cooperate within a cross border alliance, internal IOTs are set at cost and retail prices are lower.
    JEL: L13 L51 L42 L96
    Date: 2006–05
  2. By: Banerji, A (Delhi School of Economics, University of Delhi); Dutta, Bhaskar (Department of Economics, University of Warwick,)
    Abstract: This paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction. It departs from the standard Katz-Shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents. It shows that even if rival firms engage in Bertrand competition, this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits. The analysis also shows that some graphs or network structures do not permit such segmentation, while for others, there are easy to interpret conditions under which market segmentation obtains in equilibrium
    Keywords: network structure ; network externalities ; price competition ; market segmentation
    JEL: D7
    Date: 2005
  3. By: Rattanasuda Poolsombat; Gianluigi Vernasca
    Abstract: In this paper we explore the possibility of "partial-multihoming" in a two-sided market where a subset of agents, on one or both side(s), may multihome in equilibrium. We consider a model in which platforms are spatially differentiated and on each side of the market there are two type of agents, low type and high type agents, that differ only by their preferences over the network benefits. We derive under which conditions of network preferences, an equilibrium with partial multihoming on both sides exists. We show that for such an equilibrium to exist, the network benefits of high type agents must be sufficiently higher than transportation costs. Furthermore, the proportions of agents who multihome on both sides must be sufficiently small. Finally, we show that independently of the degree of multihoming on the other side of the market, agents in each group face higher prices when there is partial multihoming on their side than when there is singlehoming.
    Keywords: Two-sided markets, network externalities, heterogeneous agents.
    JEL: L13
    Date: 2006–06
  4. By: Dairo Estrada; Esteban Gómez; Inés Orozco
    Abstract: This paper analyzes the determinants of interest margins in the Colombian Financial System. Based on the model by Ho and Saun- ders (1981), interest margins are modelled as a function of the pure spread and bank-speci¯c institutional imperfections using quarterly data for the period 1994:IV-2005:III. Additionally, the pure spread is estimated as a function of market power and interest rate volatility. Results indicate that interest margins are mainly a®ected by credit institutions' ine±ciency and to a lesser extent by credit risk exposure and market power. This implies that public policies should be ori- ented towards creating the necessary market conditions for banks to enhance their e±ciency.
    Keywords: Interest Margins, Competition, Credit Risk, Interest Rate Risk.
    JEL: L11 L41 L89 G21 G28
  5. By: Coucke, K.; Sleuwaegen, L.
    Abstract: This paper studies the impact of globalisation on the exit behaviour of domestic and foreign firms in the manufacturing industries of Belgium, one of the most open economies in the world. The strongest effects are found to come from rising import growth and rising multinational firms penetration of the industry, which systematically increase the probability of exit of (inefficient) domestic firms. Product differentiation and international (out)sourcing moderate this impact and lower the risk of exit. Controlling for productivity differences across firms, exporting on itself does not lower the probability of exit. Subsidiaries of multinational firms are found to be subject to similar disciplinary forces from import competition as domestic firms but do not show exit to respond to the same passive learning process.
    Keywords: Exit, Sourcing, International Competition
    Date: 2006–06–01
  6. By: Leonardo Burlamaqui
    Abstract: In the 21 century globalized economy, innovation, antitrust issues and (new) intellectual property rules are in the forefront of every government, large company and policy making debates. This paper aims to be a preliminary effort to contribute for a better understanding of the interactions between Competition policies (rather than antitrust) and Intellectual Property issues under a schumpeterian perspective and, therefore, towards a more coherent framework within which the discussions of both institutional building and policy design towards development can proceed. The policy-institutions resulting from the analyses should be flexible and pragmatic, and should have creative destruction management – or the promotion and regulation of entrepreneurial success – as its main goal. The key insight of the policy prescriptions proposed to deal with the question is the need of a huge dose of “strategic state action” and a high degree of international cooperation.
    Date: 2006–02
    Abstract: This paper documents the patterns and determinants of price setting in the Belgian industry. We analyse the micro data underlying the Producer Price Index (PPI) over the period from February 2001 to January 2005. On average only one out of four prices changes in a typical month, whereas the absolute size of a price change amounts to 6%. The frequencies of price adjustment are particularly heterogeneous across sectors, which is determined by heterogeneity in the market and cost structure. We found no signs of downward nominal rigidity. A joint analysis of sizes and frequencies of price adjustment across time shows that price setting is characterised by both time and state dependent pricing. About 38% of the exported goods are affected by pricing to market.
    Keywords: producer price setting, nominal price rigidity, pricing to market, time dependent pricing, state dependent pricing, staggering
    JEL: D40 E31
    Date: 2006–05
  8. By: Stefan Szymanski (Tanaka Business School, Imperial College)
    Abstract: In recent years there has been some dispute over the appropriate way to model decision-making in professional sports leagues. In particular, Szymanski and Kesenne (2004), argue that formulating the decision-making problem as a noncooperative game leads to radically different conclusions about the nature of competition in sports leagues. This paper describes a simulation model that van be used in a classroom to demonstrate how competition works in a noncooperative context. The supporting Excel spreadsheet used to conduct the game can be downloaded from the author’s personal webpage anski.
    JEL: A20 D43 L83
    Date: 2006–05
    Abstract: While one stream of research in partner selection has emphasized stability in a firm’s social network, another stream has emphasized the need to expand a firm’s network. In order to reconcile these two perspectives, we explore transaction, partner and macro conditions that lead firms to work with unfamiliar partners. Using a unique hand-collected dataset, results from the formation of private equity investment syndicates demonstrate that firms are more likely to select unfamiliar partners for lower levels of primary and behavioral uncertainty and higher levels of competition. Our findings provide insights in conditions that lead firms to expand their social network.
    Date: 2006–03
  10. By: Hassan Benchekroun; Ngo Van Long
    Abstract: We investigate the effect of stock discovery on the profits of non-identical oligopolists. We show that a uniform addition to all stocks could harm firms that are originally larger than average. One conclusion that could be drawn from the results is that a new technology that leads to more efficient exploitation of the available resource is not necessarily welcomed by all firms. <P>On étudie les effets de la découverte des stocks de ressources sur les profits des firmes asymétriques. On montre que l’augmentation uniforme des stocks pour toutes les firmes pourrait désavantager celles qui sont initialement les plus grandes. On déduit que la découverte d’une nouvelle technologie qui permet une augmentation d’efficacité d’extraction pour toutes les firmes pourrait réduire le profit de certaines firmes.
    Keywords: non-renewable resource, oligopoly, stock discovery, découverte des stocks, oligopole, ressources naturelles
    Date: 2006–05–01
  11. By: Jan Kregel; Leonardo Burlamaqui
    Abstract: The present paper attempts to utilize “the knowledge-based” nature of firms’ operations as set out in the diverse theoretical frameworks to stress the importance of organisational and managerial techniques in the creation of market dominance by particular financial firms in the same way that these theories have analysed industrial firms. The article will also analyze the process of competition between different firms and between different financial structures in terms of the impact of different organisational regimes on profitability, efficiency, and instability of the economic system. As the result, the diverse policy recommendations concerning financial regulation, institution building, and microfinancial structure are given.
    Date: 2006–01
  12. By: Daron Acemoglu; Amy Finkelstein
    Abstract: This paper examines the implications of regulatory change for the input mix and technology choices of regulated industries. We present a simple neoclassical framework that emphasizes the change in relative factor prices associated with the regulatory change from full cost to partial cost reimbursement, and investigate how this affects firms’ technology choices through substitution of (capital embodied) technologies for tasks previously performed by labor. We examine these implications empirically by studying the change from full cost to partial cost reimbursement under the Medicare Prospective Payment System (PPS) reform, which increased the relative price of labor faced by U.S. hospitals. Using the interaction of hospitals’ pre-PPS Medicare share of patient days with the introduction of these regulatory changes, we document a substantial increase in capital-labor ratios and a large decline in labor inputs associated with PPS. Most interestingly, we find that the PPS reform seems to have encouraged the adoption of a range of new medical technologies. We also show that the reform was associated with an increase in the skill composition of these hospitals, which is consistent with technology-skill or capital-skill complementarities.
    JEL: H51 I18 L50 L51 O31 O33
    Date: 2006–05
  13. By: Ken Hendricks; Alan Sorensen
    Abstract: This paper studies the role of consumer learning in the demand for recorded music by examining the impact of an artist’s new album on sales of past and future albums. Using detailed album sales data for a sample of 355 artists, we show that the release of a new album increases sales of old albums, and the increase is substantial and permanent—especially if the new release is a hit. Various patterns in the data suggest the source of the spillover is information: a new release causes some uninformed consumers to learn about their preferences for the artist’s past albums. These information spillovers suggest that the high concentration of success across artists may partly result from a lack of information, and they have significant implications for investment and the structure of contracts between artists and record labels.
    JEL: D83 L15 L82
    Date: 2006–05
  14. By: Isabelle Brocas
    Abstract: I consider a model where a principal decides whether to produce one unit of an indivisible good (e.g. a private school) and which characteristics it will contain (emphasis on language or science). Agents (parents) are differentiated along two substitutable dimensions: a vertical parameter that captures their privately known valuation for the good (demand for private education), and an horizontal parameter that captures their observable differences in preferences for the characteristics. I analyze the optimal mechanism offered by the principal to allocate the good and show that the principal will produce a good with characteristics more on the lines of the preferences of the agent with the lowest valuation. Furthermore, if the principal has also a private valuation for the good, he will bias the choice of the characteristics against his own preferences.
    Keywords: Allocation mechanisms, non-excludable goods, vertical and horizontal differentiation, mechanism design, externalities
    JEL: D44 D62
    Date: 2006–05
  15. By: William Pyle; ;
    Abstract: Drawing on a unique set of surveys, this article explores the question of whether Russia’s post-communist business associations are generally antithetical to or supportive of the broad objectives of economic restructuring. Contrary to the most widely cited analysis as to the purposes of collective action in the business community, the survey evidence demonstrates that association members have embraced market-adapting behaviors at greater rates than nonmembers. The responses of both firms and associations, moreover, suggest that the associations themselves may, at least in part, be directly responsible. These findings point to the conclusion that in contemporary Russia the net returns to collective action in support of market development are high relative to those for purposes that are less benign.
    Keywords: business associations, collective action, post-communist transition, and market institutions
    JEL: D7 L2 L3 O1 P2
    Date: 2005–09–01
  16. By: Lence, Sergio H.; Marette, Stéphan; Hayes, Dermot J.; Foster, William
    Abstract: This paper examines the incentive of atomistic agricultural producers within a specific geographical region to differentiate and collectively market products. We develop a model that allows us to analyze the market and welfare effects of the main types of real-world producer organizations, using it to derive economic insights regarding the circumstances under which these organizations will evolve, and describing implications of the results obtained in the context of an ongoing debate between the European Union and United States. As the anticipated fixed costs of development and marketing increase and the anticipated size of the market falls, it becomes essential to increase the ability of the producer organization to control supply in order to ensure the coverage of fixed costs. Whenever a collective organization allows a market (with a new product) to exist that otherwise would not have existed there is an increase in societal welfare. Counterintuitively, stronger property right protection for producer organizations may be welfare enhancing even after a differentiated product has been developed. The reason for this somewhat paradoxical result is that legislation aimed at curtailing the market power of producer organizations may induce large technological distortions.
    Keywords: agricultural products, collective promotion, geographic indications, supply control, quality.
    Date: 2006–05–31
  17. By: Guasch, Jose Luis; Foster, Vivien; Andres, Luis
    Abstract: The authors analyze the impact of privatization on the performance of 116 electric utilities in 10 Latin American countries. The analysis makes a number of contributions to the literature on changes in infrastructure ownership. First, this is the first systemic analysis of the impact of privatization on the distribution of the electricity sector. Second, it constructs an unbalanced panel data set of key indicators for each country. Third, it includes a broader-than in past studies-range of indicators, such as output, employment, productivity, efficiency, quality, coverage, and prices, offering a fuller picture of the effects of privatization on consumers. Fourth, this research covers a longer period of time, and evaluates three stages-before, transition, and after-allowing for the identification of the short- and long-run effects of privatization, as opposed to previous analyses ' short time series data that do not identify long-run outcomes. Finally, the counterfactual is considered through the analysis in trends. The authors apply two different methodologies. The first methodology uses means and medians from each period and tests the significance of the changes between periods. The second methodology consists of an econometric model that captures firm fixed effects, firm-specific time trends, and heteroscedasticity corrections. When needed, the authors used firm-specific time trends to better understand the outcomes. The results suggest that changes in ownership generate significant improvements in labor productivity, efficiency, and product and service quality, and that most of those changes occur in the transition period. Improvements in the post transition period-beyond two years after the change in ownership-are much more modest.
    Keywords: Economic Theory & Research,Energy Production and Transportation,Public Sector Economics & Finance,Labor Markets,Science Education
    Date: 2006–06–01

This nep-com issue is ©2006 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.