|
on Industrial Competition |
| By: | Matti Liski; Juan-Pablo Montero |
| Abstract: | We consider an infinitely-repeated oligopoly in which at each period firms not only serve the spot market by either competing in prices or quantities but also have the opportunity to trade forward contracts. Contrary to the pro-competitive results of finite-horizon models, we find that the possibility of forward trading allows firms to sustain collusive profits that otherwise would not be possible. The result holds both for price and quantity competition and follows because (collusive) contracting of future sales is more effective in deterring deviations from the collusive plan than in inducing the previously identified pro-competitive effects. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0506&r=com |
| By: | Marco Henseler (Institute of Economics and Law, Department of Microeconomics and Spatial Economics, University of Stuttgart) |
| Abstract: | This paper analyzes the behavior of horizontal B2B marketplaces along the supply chain in case a vertical intermediary tries to enter by attracting industry-specific buy-side and sell-side firms. It will be shown that an entrant can only integrate all firms along the vertical production chain in case the industry is strong buy-side dominated. For the remaining scenarios we will determine different levels of integration for buy-side and sell-side dominated branches, in which firms from upper stages will stay at the incumbent. Moreover, we will show that horizontal marketplaces for MRO and other simple goods will being driven out of the market in any case. |
| Keywords: | intermediation, matching, two-sided markets |
| JEL: | C78 L13 L22 L86 |
| Date: | 2006–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:stt:dpaper:20061&r=com |
| By: | Ludovic Julien (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]); Fabrice Tricou (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]) |
| Abstract: | This paper explores the rationale of price-taking and price-making behaviours in the context of Walrasian and Cournotian pure exchange economies. Beside the influence of the number of agents, we underline the role of the structure of preferences. Through three equilibrium variations of the same basic economy, we obtain several results about price manipulation, about asymptotic identifications for large economies and for degenerate preferences, and about welfare comparisons. Perfect competition does not only correspond to the case of large economies, but may also concern economies where market powers are more or less equivalent. |
| Keywords: | Cournot-Walras equilibria, oligopoly, perfect competition |
| Date: | 2006–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00088012_v1&r=com |
| By: | Juan-Pablo Montero; Juan Ignacio Guzmán |
| Abstract: | Following the structure of many commodity markets, we consider a reduced number of large firms and a competitive fringe of many small suppliers choosing quantities in an infinitehorizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the non-collusive output level). The latter occurs during booms, when the fringe’s market share is more important, and is due to the strategic substitutability of quantities (we will never observe an output-expanding collusion in a price-setting game). In addition and depending on the fringe’s market share the time at which collusion is most difficult to sustain can be either at booms or recessions. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0511&r=com |
| By: | Andrés Fuentes; Eckhard Wurzel; Andreas Reindl |
| Abstract: | Much scope remains to make regulation of product markets more conducive to competition ? notwithstanding progress in recent years ? with substantial benefits for consumer welfare, productivity and employment. While the general competition legislation and enforcement framework is mostly effective, measures need to be taken to reduce administrative burdens on entrepreneurship and reduce the involvement of the government in business sector activities, notably through accelerated privatisation. Policies favouring small enterprises need to be revised, with a view to fully exposing them to competition and avoiding disincentives for small firms to grow. Substantial regulatory challenges exist in specific sectors, notably in the energy and railway industries where non-discriminatory access of market entrants to networks needs to be improved. Environmental objectives in energy market regulation could be achieved at lower cost. In the telecommunications industry, competition in the local loop can be strengthened. Regulation of the liberal professions is among the most restrictive in the OECD. Entry barriers need to be eliminated in crafts. and restrictions on large-scale retailing development could be eased. This paper relates to the 2006 Economic Survey of Germany (www.oecd.org/eco/surveys/germany). <P>Améliorer la performance économique en stimulant la concurrence sur les marchés de produits en Allemagne <BR>En dépit des progrès accomplis ces dernières années, beaucoup reste à faire pour rendre la réglementation des marchés de produits plus propice à la concurrence, ce qui induira de substantiels avantages en termes de bien-être du consommateur, de productivité et d'emploi. Le droit commun de la concurrence et son cadre d'application sont dans l'ensemble efficaces, mais il faut alléger les charges administratives qui pèsent sur l'entrepreneuriat et réduire l'intervention de l'État dans les activités du secteur des entreprises, notamment par une privatisation accélérée. Il convient de réviser les dispositifs favorables aux petites entreprises, pour les exposer pleinement à la concurrence et éviter de les décourager de croître. De sérieux problèmes de réglementation persistent dans certains secteurs, notamment l'énergie et les chemins de fer, où l'accès non discriminatoire des entrants aux réseaux demande à être amélioré. Les objectifs environnementaux de la réglementation des marchés de l'énergie pourraient être réalisés à moindre coût. Dans l'industrie des télécommunications, la concurrence sur la boucle locale peut être renforcée. La réglementation des professions libérales est parmi les plus restrictives de la zone OCDE. Dans le secteur de l'artisanat, les obstacles à l'entrée doivent être supprimés, et il convient d'assouplir les restrictions qui limitent le développement des magasins de grande surface. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l’Allemagne 2006 (www.oecd.org/eco/etudes/allemagne). |
| Keywords: | network industries, industrie de réseau, competition, privatisation, Germany, Allemagne, concurrence, privatisation, competition law, productivity and growth, droit de la concurrence, productivité et croissance, regulatory policies, politique de réglementation |
| JEL: | K21 K23 L16 L40 L43 L51 L53 O52 Q3 |
| Date: | 2006–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:507-en&r=com |
| By: | Joseph E. Harrington, Jr |
| Abstract: | One of the primary challenges to measuring the impact of antitrust policy on collusion is that the cartel population is unobservable; we observe only the population of discovered cartels. To address this challenge, a model of cartel creation and dissolution is developed to endogenously derive the populations of cartels and discovered cartels. It is then shown how one can infer the impact of antitrust policy on the population of cartels by measuring its impact on the population of discovered cartels. In particular, the change in the distribution on the duration of discovered cartels could be informative in assessing whether a new antitrust policy is reducing the latent rate of cartels. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:jhu:papers:532&r=com |
| By: | Joseph E. Harrington, Jr |
| Abstract: | This paper distills and organizes facts about cartels from about 20 European Commission decisions over 1999-2004. It describes the properties of a collusive outcome, monitoring and punishment methods for enforcing it, the frequency of meetings, the organizational structure of cartels, and what preceded cartel formation. |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:jhu:papers:531&r=com |
| By: | Jens Suedekum (University of Konstanz and IZA Bonn) |
| Abstract: | We introduce a simple oligopolistic trade model with international transportation costs, and analyze the profitability and the social desirability of national vs. international mergers in relation to three different issues, (i) the level of trade freeness, (ii) the possibility of rent appropriation on world markets, and (iii) direct "synergy" effects of mergers. Cross-border M&A is privately and socially more attractive than domestic mergers. National competition policy may be too permissive towards M&A, because it does not take into account the negative impact of decreasing competition on world consumer surplus. We also discuss the normative implications of "national champions". The promotion of national mergers can be in the interest of individual countries if rent extraction possibilities are strong enough, but global welfare is adversely affected. |
| Keywords: | mergers, national champions, international trade, economic integration |
| JEL: | F12 F23 L13 L52 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2220&r=com |
| By: | Pierre-Guillaume Méon (DULBEA-CERT, Université libre de Bruxelles, Brussels); Anne-France Delannay (Université Robert Schuman, France) |
| Abstract: | The present paper applies a gravity model with fixed country effects to M&A flows on a sample of 1215 pairs of countries over the 1998-2001 period, to test the impact of European integration. That model, which had to our knowledge not been applied to M&A flows so far, allows us to observe that the participation of two countries in the process of European integration is associated with a smaller negative impact of distance on the number and the value of those countries’ bilateral M&A flows. We observe no such effect for the EMU however. |
| Keywords: | Mergers and acquisitions, multinational firms, gravity models, European integration, EMU |
| JEL: | F15 F23 G34 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:06-12rs&r=com |
| By: | Matti Liski; Juan-Pablo Montero |
| Abstract: | We consider a market for storable pollution permits in which a large agent and a fringe of small agents gradually consume a stock of permits until they reach a long-run emissions limit. The subgame-perfect equilibrium exhibits no market power unless the large agent’s share of the initial stock of permits exceeds a critical level. We then apply our theoretical results to a global market for carbon dioxide emissions and the existing US market for sulfur dioxide emissions. We characterize competitive permit allocation profiles for the carbon market and find no evidence of market power in the sulfur market. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0516&r=com |
| By: | Stephen Ryan |
| Abstract: | The typical cost analysis of an environmental regulation consists of an engineering estimate of the compliance costs. In industries where fixed costs are an important determinant of market structure this static analysis ignores the dynamic effects of the regulation on entry, investment, and market power. I evaluate the welfare costs of the 1990 Amendments to the Clean Air Act on the US Portland cement industry, accounting for these effects through a dynamic model of oligopoly in the tradition of Ericson and Pakes (1995). Using a recently developed two-step estimator, I recover the entire cost structure of the industry, including the distribution of sunk entry costs and adjustment costs of investment. I find that the Amendments have significantly increased the sunk cost of entry. I solve for the Markov perfect Nash equilibrium (MPNE) of the model and simulate the welfare effects of the Amendments. A static analysis misses the welfare penalty on consumers, and obtains the wrong sign on the welfare effects on incumbent firms. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0510&r=com |
| By: | Paul L Joskow |
| Abstract: | Over the last twenty years several network industries that evolved historically as either private or state-owned regulated vertically integrated monopolies have been privatized, restructured, and some vertical segments deregulated. These industries include telecommunications, natural gas, electric power, and railroads. The reform program typically involves the vertical separation (ownership or functional) of potentially competitive segments, which are gradually deregulated, from remaining vertical segments that are assumed to have natural monopoly characteristics and continue to be subject to price, network access, service quality and entry regulations. In several countries, an important part of the reform agenda has included the introduction of “incentive regulation” mechanisms for the remaining regulated segments as an alternative to traditional “cost of service” or “rate of return” regulation. The expectation was that incentive regulation mechanisms would provide more powerful incentives for regulated firms to reduce costs, improve service quality in a cost effective way, stimulate (or at least not impede) the introduction of new products and services, and stimulate efficient investment in and pricing of access to regulated infrastructure services. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0514&r=com |
| By: | Paul L. Joskow |
| Abstract: | Evidence from the U.S. and some other countries indicates that organized wholesale markets for electrical energy and operating reserves do not provide adequate incentives to stimulate the proper quantity or mix of generating capacity consistent with mandatory reliability criteria. A large part of the problem can be associated with the failure of wholesale spot market prices for energy and operating reserves to rise to high enough levels during periods when generating capacity is fully utilized. Reforms to wholesale energy markets, the introduction of well-design forward capacity markets, and symmetrical treatment of demand response and generating capacity resources to respond to market and institutional imperfections are discussed. This policy reform program is compatible with improving the efficiency of spot wholesale electricity markets, the continued evolution of competitive retail markets, and restores incentives for efficient investment in generating capacity consistent with operating reliability criteria applied by system operators. It also responds to investment disincentives that have been associated with volatility in wholesale energy prices, limited hedging opportunities and to concerns about regulatory opportunism. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0609&r=com |
| By: | Peter Cramton; Steven Stoft |
| Abstract: | This paper compares market designs intended to solve the resource adequacy (RA) problem, and finds that, in spite of rivalrous claims, the most advanced designs have nearly converged. The original dichotomy between approaches based on long-term energy contracts and those based on short-term capacity markets spawned two design tracks. Long-term energy contracts led to call-option obligations which provide marketpower control and the ability to strengthen performance incentives, but this approach fails to replace the missing money at the root of the adequacy problem. Hogan’s (2005) energy-only market fills this gap. On the other track, the short-term capacity markets (ICAP) spawned long-term capacity market designs. In 2004, ISO New England proposed a short-term market with hedged performance incentives essentially based on high spot prices. In 2005, we developed for New England a forward capacity market, with load obligated to purchase a target level of capacity covered by an energy call option. The two tracks have now converged on two conclusions: (1) High real-time energy prices should provide performance incentives. (2) High energy prices should be hedged with call options. We argue that two more conclusions are needed: (3) Capacity targets rather than high and volatile spot prices should guide investment, and (4) Long-term physically based options should be purchased in a forward market for capacity. The result will be that adequacy is maintained, performance incentives are restored, market power and risks are reduced from present levels, and prices are hedged down to a level below the present price cap. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0607&r=com |
| By: | Dmitri Perekhodtsev; Lester Lave |
| Abstract: | In order to preserve stability of electricity supply generators must provide ancillary services in addition to energy production. Hydroelectric resources have significant ancillary service capability because of their dynamic flexibility. This paper suggests a solution for optimal bidding for hydro units operating in simultaneous markets for energy and ancillary services by estimating water shadow price from operating parameters of the hydro unit, expectations on prices of energy and ancillary services, and water availability. The model implications are illustrated on a numerical example of a hydro unit operating in markets of New York Independent System Operator. Participation in ancillary services market increases or decreases water shadow price depending on water availability. As a result of participation in ancillary services markets, a unit with water availability given by a capacity factor of 0.6 increases the value of existing generating capacity by 25% and nearly doubles the value of incremental generating capacity. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0603&r=com |
| By: | Anne Neumann; Christian von Hirschhausen |
| Abstract: | In this paper, we analyze structural changes in long-term contracts in the international trade of natural gas. Using a unique data set of 262 long-term contracts between natural gas producers and importers, we estimate the impact of different institutional, structural and technical variables on the duration of contracts. We find that contract duration decreases as the market structure of the industry develops to more competitive regimes. Our main finding is that contracts that are linked to an asset specific investment are on average four years longer than those who are not. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0610&r=com |
| By: | Yue, Chengyan; Marette, Stéphan; Beghin, John C. |
| Abstract: | In the context of the wine industry, we investigate producers’ choice between geographical indications and brand advertising to convey information to consumers. Producers also decide whether or not to select an effort level for improving the quality of their products. We show that if this effort level is selected, a producer will prefer to rely on brand advertising for promoting its products and setting up its own reputation. Despite allowing the cost of promotion to be shared, a geographical indication does not sufficiently reward the effort to improve quality. Finally, the selection of both instruments by producers is examined. |
| Keywords: | brand advertising, effort, geographical indication, GI, quality, wine. |
| Date: | 2006–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12651&r=com |
| By: | Hasret Benar (Eastern Mediterranean University); Glenn Jenkins (Queen's University) |
| Abstract: | This paper considers alternative forms of regulation and taxation of the casino sector. The model considers the situation of a typical tourist destination country that is using casinos to attract and entertain foreign tourists. The objective is to invest in the sector efficiently while maximizing the amount of government revenue or profits accruing to the country. The regulator must determine how the price of gambling will be set, how many casinos will be allowed to enter the industry and the form and rates of taxation. Four alternative forms of regulation are considered: price regulation, state-owned monopoly, private monopoly and casino association regulation. Turnover taxes on the amount of funds gambled and also annual taxation of the fixed costs of the casinos are evaluated. Applications of the models are carried out for North Cyprus. The conclusion is that the economic efficiency costs and the revenue losses from the absence of effective regulation in these tourist destinations can be very substantial with welfare costs equal to the approximately 75 percent of the tax revenue generated by this sector. Furthermore it shows that while a tax on turnover can be efficient in the case of a competitive industry or a cartel association form of regulation, it will be distortionary if a multi-plant private monopoly is controlling the sector. In contrast a tax on fixed costs will lead to an efficient result in the case of a competitive industry, but it will lead to economic inefficiencies if the sector is regulated by a casino association that controls the number of casino entering the sector. |
| Keywords: | Casino regulation, taxation, state-monopoly, welfare cost |
| JEL: | H21 H32 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1088&r=com |
| By: | Ginger Zhe Jin; Andrew Kato; John A. List |
| Abstract: | This study uses field experiments to investigate empirically the informational role of professional certifiers. We explore a certification market that has evolved in such a manner that provides a unique opportunity to measure the information provision of a monopolist certifier and that of subsequent entrants. Empirical results suggest that the certification industry plays a dual role: it reduces the information asymmetry between informed and uninformed parties and generates new information to all market players. Interestingly, the second role isn’t conspicuous until the certification market becomes competitive, as the monopolist certifier credibly distinguishes lemons from non-lemons for the uninformed party, but adds little information to experienced agents. On the contrary, new entrants adopt more precise signals and use finer grading cutoffs to differentiate from the incumbent. Our measured differentiated grading cutoffs map consistently into prevailing market prices, suggesting that the market recognizes differences across multiple grading criteria. |
| JEL: | D8 C93 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12390&r=com |
| By: | Christian Growitsch (Halle Institute for Economic Research); Heike Wetzel (Institute of Economics, University of Lüneburg) |
| Abstract: | In the course of railway reforms at the end of the last century, European national governments, as well the EU Commission, decided to open markets and to separate railway networks from train operations. Vertically integrated railway companies argue that such a separation of infrastructure and operations would diminish the advantages of vertical integration and would therefore not be suitable to raise economic welfare. In this paper, we conduct a pan-European analysis to investigate the performance of European railways with a particular focus on economies of scope associated with vertical integration. We test the hypothesis that integrated railways realize economies of joint production and, thus, produce railway services on a higher level of efficiency. To determine whether joint or separate production is more efficient we apply an innovative Data Employment. Analysis super-efficiency bootstrapping model which relates the efficiency for integrated production to a virtual reference set consisting of the separated production technology and which is applicable to other network industries as energy and telecommunication as well. Our findings are that for a majority of European Railway economies of scope exist. |
| Keywords: | Efficiency, Vertical Integraton, Railway Industry |
| JEL: | L22 L43 L92 |
| Date: | 2006–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:29&r=com |
| By: | Monique Ebell (Humboldt University of Berlin); Christian Haefke (Institute for Advanced Studies, Vienna, Instituto de Análisis Económico, CSIC and IZA Bonn) |
| Abstract: | We contribute to the growing literature which aims to link product market regulation and competition to labor market outcomes, in an attempt to explain the divergent US and continental European labor market performance over the past two decades. The main contributions of this paper are threefold. First, we show that the choice of bargaining regime is crucial for the effect of product market competition on unemployment rates, being substantial under collective bargaining and considerably more modest under individual bargaining. Since the choice of bargaining institution is so important, we endogenize it. We find that the bargaining regime which emerges endogenously depends crucially on the degree of product market competition. When product market competition is low, collective bargaining is stable, while individual bargaining emerges as the stable institution under high degrees of product market competition. This also allows us to link product market competition and collective bargaining coverage rates. Our results suggest that the strong decline in collective bargaining coverage and unionization in the US and UK over the last two decades might have been a direct consequence of the Reagan/Thatcher product market reforms of the early 80’s. Finally, we calibrate the model to assess the quantitative magnitude of our results. We find that moving from the US low regulation-individual bargaining economy to the EU high regulation-collective bargaining economy leads to a substantial increase in equilibrium unemployment rates from 5.5% to 8.9 % in the model economy. |
| Keywords: | product market competition, European Unemployment Puzzle, overhiring, wage bargaining |
| JEL: | E24 J63 L16 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2222&r=com |
| By: | Jan Kranich (Institute of Economics, University of Lüneburg) |
| Abstract: | This paper discusses the interdenpendencies that exist between vertically-linked industries in the (Spence-)Dixit-Stiglitz model of monopolistic competition. The main objective is to develop a concept for quantifying the magnitude of sectoral coherence in models of the New Economic Geography. It is motivated by the suggestion, by Venables (1996), that `strategic industries` be identified in terms of their agglomeration potential. Using a partial-analytic approach, we focus on inter-industrial relations in a closed economy to draw conclusions regarding international trade. We ascertain that two factors have an impact upon the strength of industrial linkages: 1) the monopolistic scope of intermediate suppliers, in terms of (technical) substitution elasticity; and the share in downstream costs for intermediates. Within a simulation study, this paper applies this new theoretical concept to eight basic industries across ten European countries. |
| Keywords: | New Economic Geography, Vertical Linkages |
| JEL: | F12 F14 F17 |
| Date: | 2006–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:20&r=com |