nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒07‒09
thirteen papers chosen by
Russell Pittman
US Department of Justice

  1. Competing With the NYSE By William O. Brown, Jr.; J. Harold Mulherin; Marc D. Weidenmier
  2. Hospital Competition, Managed Care and Mortality After Hospitalization for Medical Conditions: Evidence From Three States By José J. Escarce; Arvind K. Jain; Jeannette Rogowski
  3. Price Leadership in the Dutch Mortgage Market By Leo de Haan; Elmer Sterken
  4. Competition and Innovation - Microeconometric Evidence using Finnish Data By Juha Kilponen; Torsten Santavirta
  5. Why Haven't Price-Cost Margins Decreased with Globalization ? By Hervé Boulhol
  6. License auctions when winning bids are financed through debt By Haan, M.A.; Toolsema, L.A.
  7. Entry regulations and labor market outcomes: evidence from the Italian retail trade sector By Eliana Viviano
  8. Back to Basics: A New Look at Gate-revenue Sharing and Competitive Balance By Robert Sandy; Peter Sloane; John Treble
  9. Efficiency vs. agency motivations for bank takeovers: some empirical evidence By Alessio De Vincenzo; Claudio Doria; Carmelo Salleo
  10. Tour operators' price strategie in the Balearic Islands By Joaquín Alegre; Maria Sard
  11. Competitive Wages in a Match with Ordered Contracts By Muriel Niederle
  12. Ownership concentration in Russian industry By Sergei Guriev; Andrei Rachinsky
  13. Market Structure and Communicable Diseases By Stéphane Mechoulan

  1. By: William O. Brown, Jr.; J. Harold Mulherin; Marc D. Weidenmier
    Abstract: We study the stock exchange rivalry between the New York Stock Exchange (NYSE) and the Consolidated Stock Exchange (Consolidated) from 1885 to 1926 using a new database of bid-ask spreads and stock data collected from The New York Times and other primary sources. The magnitude of this important, but largely forgotten rivalry was substantial. From 1885 to 1895, the ratio of Consolidated to NYSE volume averaged 40 percent and reached as high as 60 percent. The market share of the Consolidated averaged 23 percent for approximately 40 years. The Consolidated focused on the relatively liquid securities on the NYSE as measured by bid-ask spreads and trading volume. Our results suggest that NYSE bid-ask spreads fell by more than 10 percent when the Consolidated began to trade NYSE stocks while bid-ask spreads for our quasicontrol group of stocks trading on the Boston Stock Exchange remain unchanged. The effect persisted over the entire history of the stock market rivalry until a series of scandals and investigations of the Consolidated by state regulators led to the demise of the exchange in the 1920s. The analysis suggests three conclusions: (1) the NYSE has faced significant long-run competition (2) the NYSE may be susceptible to a similar level of competition in the future and (3) that the Consolidated may have improved the efficiency of stock prices by contributing to the price discovery process.
    JEL: G1 G2 N2
    Date: 2006–06
  2. By: José J. Escarce; Arvind K. Jain; Jeannette Rogowski
    Abstract: This study assessed the effect of hospital competition and HMO penetration on mortality after hospitalization for six medical conditions in California, New York, and Wisconsin. We used linked hospital discharge and vital statistics data to study adults hospitalized for myocardial infarction, hip fracture, stroke, gastrointestinal hemorrhage, congestive heart failure, or diabetes. We estimated logistic regression models with death within 30 days of admission as the dependent variable and hospital competition, HMO penetration, and hospital and patient characteristics as explanatory variables. Higher hospital competition was associated with lower mortality in California and New York, but not Wisconsin. In addition, higher HMO penetration was associated with lower mortality in California, but higher mortality in New York. In the context of the study states’ history with managed care, these findings suggest that hospitals in highly competitive markets compete on quality even in the absence of mature managed care markets. The findings also underscore the need to consider geographic effects in studies of market structure and hospital quality.
    JEL: I1
    Date: 2006–06
  3. By: Leo de Haan; Elmer Sterken
    Abstract: We study competitive price setting behavior in the Dutch mortgage market, using daily observations on advertised 5- and 10-year mortgage interest rates for a sample of the four largest Dutch banks. We (1) estimate a VECM model, (2) a discrete choice model and (3) a structural conjectural variation model. The results indicate that one of the banks is a price leader, but that waiting for the leader to set the first step does not exclude competitive pricing by the followers.
    Keywords: Mortgage market; Competition; Price leadership; VECM; Probit; Conjectural variation.
    JEL: G21 L13
    Date: 2006–06
  4. By: Juha Kilponen; Torsten Santavirta
    Abstract: The relationship between product market competition (PMC) and innovative activity has attracted the attention of many economists lately. In this study we elaborate the theory of Aghion et al. (1997, 2001) of an inverted-U relationship between competition and innovations. We provide a theoretical prediction of a complementary relationship between the incentive effects of PMC and R&D subsidies. We empirically test our complementarity prediction and that of an inverted-U relationship using Finnish firm level data. Our results suggest that the inverted-U relationship is fairly robust to all our innovation measures. We also find that the inverted-U relationship tends to be steeper when also direct R&D subsidies are considered. This result suggests that there exists complementarity between competition and R&D subsidies.
    Keywords: Product market competition, Innovation, R&D subsidies
    JEL: O31 O10 O30 L10
    Date: 2004–11–15
  5. By: Hervé Boulhol (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    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.
    Date: 2006–07–06
  6. By: Haan, M.A.; Toolsema, L.A. (Groningen University)
    Abstract: We study an auction where two licenses to operate on a new market are sold, and winning bidders finance their bids on the debt market. Higher bids imply higher debts, which affects product market competition. We compare our results to those of a beauty contest and a standard auction. For the case that debt induces firms to compete more aggressively, we find that consumer prices are lower, and expected firm profits are strictly positive although firms are a priori identical. When debt induces firms to compete less aggressively, we find that firms make zero profits, and consumer prices are higher.
    Date: 2006
  7. By: Eliana Viviano (Banca d'Italia)
    Abstract: The paper analyzes the relationship between barriers to entry and employment in the Italian retail trade sector. In Italy the opening of large outlets is regulated at the regional level. By using differences-in-differences estimators I study the effects of the rules implemented in Abruzzo and Marche, two otherwise close and similar Italian regions, that adopted very different policies: the first set tight restrictions on the opening of large stores; the second did not impose substantial entry barriers. The results show that entry barriers have a negative and sizeable impact on employment growth. Some evidence is also found that fiercer competition encourages the development of more efficient small retail trade shops. These findings are robust to a number of checks.
    Keywords: entry barriers, employment growth, differences-in-differences estimator
    JEL: J21 J23 K23
    Date: 2006–05
  8. By: Robert Sandy (Indiana University Purdue University Indianapolis (IUPUI)); Peter Sloane (University of Swansea); John Treble (University of Swansea)
    Abstract: Most models with profit maximizing teams conclude that competitive balance is unchanged or reduced in response to gate sharing. We critique these models and then develop three alternatives: adding unshared post-season revenue; modelling the largest market team as a dominant firm with a rising marginal cost of talent; and a new general model that incorporates both a consumer demand for athletic talent and close competition. All three approaches can cause gate sharing to increase competitive balance.
    Keywords: Sport, Monopsony, Monopoly Power
    JEL: J0 L0 L83
    Date: 2006–06
  9. By: Alessio De Vincenzo (Bank of Italy); Claudio Doria (Bank of Italy); Carmelo Salleo (Bank of Italy)
    Abstract: Bank takeovers result on average in little improvements in performance. This may be due to conflicting driving forces behind them; however these have seldom been studied. We study directly the motivations for bank acquisitions by analyzing the prices paid for them, under the assumption that bankers are willing to pay for what they want. We find that there is no evidence that bankers are ready to pay for possible economies of scale and scope; on the other hand buyers expect to transfer their superior managerial skills to targets. Market power seems to hold little value while entry (or diversification) commands a premium. Agency issues at the buyer are also an important motivation for takeovers: other things being equal acquirers with more free capital are willing to pay more.
    Keywords: banking, M&As, pricing, corporate governance, market power
    JEL: G21 G34 L21
    Date: 2006–05
  10. By: Joaquín Alegre (Universitat de les Illes Balears); Maria Sard (Universitat de les Illes Balears)
    Abstract: In this paper we analyse the package tours prices from a sample of British and German tour operators. The offers correspond to one-week tourist packages in the Balearic Islands in a specific hotel establishment. The period studied comprises the 2002 and 2003 high seasons, what provides us with a dynamic perspective. The paper shows the existence of persistent differences in the mean prices from tour operators, as well as price distributions with different dispersion and shape among tour operators and markets. The time variation of these distributions seems to be linked to the market situation and structure. Although the paper is presented as an empirical investigation, the results can be interpreted in the context of theoretical literature on price dispersion.
    Keywords: price dispersion, tour operators’ industry
    JEL: L11 L83
    Date: 2006–06
  11. By: Muriel Niederle
    Abstract: A recent antitrust lawsuit against the National Residency Matching Program renewed interest in understanding the effects of a centralized match on wages of medical residents. Bulow and Levin (forthcoming) propose a simple model of the NRMP, in which firms set impersonal salaries simultaneously, before matching with workers, and show that a match leads to lower aggregate wages compared to any competitive outcome. This paper models a feature present in the NRMP, ordered contracts, that allows firms to set several contracts while determining the order in which they try to fill these contracts. I show that the low wage equilibrium of Bulow and Levin is not robust to this feature of the NRMP, and competitive wages are once more an equilibrium outcome. Furthermore, a match with ordered contracts has different properties than former models of centralized matches with multiple contracts.
    JEL: D4 J3 J4
    Date: 2006–06
  12. By: Sergei Guriev (New Economic School/CEFIR and CERP); Andrei Rachinsky (CEFIR)
    Abstract: Using a unique dataset built for the World Bank’s Country Economic Memorandum, we find that a relatively small number of tycoons ('oligarchs') control a substantial share of Russia’s economy. Oligarchs seem to run their empires more efficiently than other Russian owners. While the relative weight of their firms in Russian economy is huge, they do not seem to be excessively large by the standards of the global economy where most of them are operating. However, a majority of the Russian population deems their property rights illegitimate, which creates a fundamental problem for building a democratic and prosperous Russia.
    Date: 2004–10
  13. By: Stéphane Mechoulan
    Abstract: Communicable diseases pose a formidable challenge for public policy. Using numerical simulations, we show under which scenarios a monopolist’s price and prevalence paths converge to a nonzero steady-state. In contrast, a planner typically eradicates the disease. If eradication is impossible, the planner subsidizes treatments as long as the prevalence can be controlled. Drug resistance exacerbates the welfare difference between monopoly and first best outcomes. Nevertheless, because the negative externalities from resistance compete with the positive externalities of treatment, a mixed competition/monopoly regime may perform better than competition alone. This result has important implications for the design of many drug patents.
    Keywords: communicable disease, resistance, epidemiology, patent
    JEL: I18 L12
    Date: 2005–06–27

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