nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒08‒19
eight papers chosen by
Russell Pittman
US Department of Justice

  1. Multi-Product Firms and Product Switching By Andrew B. Bernard; Stephen Redding; Peter K. Schott
  2. Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions By Holger Breinlich
  3. Competing Technologies in the Database Management Systems Market By Tobias Kretschmer
  4. Are Internet Prices sticky? By Patrick Lünnemann; Ladislav Wintr
  5. Mergers and Acquisitions in the Colombian Financial Sector (Impact on Efficiency 1990 – 2005) By Sergio Clavijo; Carlos I. Rojas; Camila Salamanca; Germán Montoya
  6. Measuring and Explaining Management Practices Across Firms and Countries By Nick Bloom; John Van Reenen
  7. The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India By Philippe Aghion; Robin Burgess; Stephen Redding; Fabrizio Zilibotti
  8. The Influence of Product Markets on Industrial Relations By William Brown

  1. By: Andrew B. Bernard; Stephen Redding; Peter K. Schott
    Abstract: This paper examines the frequency, pervasiveness and determinants of product switching among U.S.manufacturing firms. We find that two-thirds of firms alter their mix of five-digit SIC products everyfive years, that one-third of the increase in real U.S. manufacturing shipments between 1972 and 1997is due to the net adding and dropping of products by survivors, and that firms are more likely to dropproducts which are younger and have smaller production volumes relative to other firms producingthe same product. The product-switching behavior we observe is consistent with an extended model ofindustry dynamics emphasizing firm heterogeneity and self-selection into individual product markets.Our findings suggest that product switching contributes towards a reallocation of economic activitywithin firms towards more productive uses.
    Keywords: Heterogeneous firms, Product differentiation, Product market entry and exit
    JEL: D21 E23 L11 L60
    Date: 2006–08
  2. By: Holger Breinlich
    Abstract: This paper analyzes mergers and acquisitions (M&A) as a previously neglected channel ofindustrial restructuring in the face of trade liberalization. Using the Canada-United StatesFree Trade Agreement of 1989 as a natural experiment, I show that trade liberalization leadsto a significant increase in M&A activity. I also provide evidence that resources aretransferred from less to more productive firms in the process and that the magnitude of theoverall transfer is quantitatively important. Taken together, these results suggest that M&A isan important alternative to the previously studied adjustment channels of firm andestablishment closure and contraction. This has strong implications for the design ofcompetition policy in the wake of trade liberalizations since M&A may offer a more efficientway of transferring resources than contraction and closure of low productivity firmscombined with internal growth of more efficient firms.
    Keywords: Mergers and Acquisitions, Trade Liberalization, International Trade, CUSFTA
    JEL: F12 F15 L2 L4
    Date: 2006–03
  3. By: Tobias Kretschmer
    Abstract: In this paper, we study the dynamics of the market for Database Management Systems(DBMS), which is commonly assumed to possess network effects and where there is stillsome viable competition in our study period, 2000 - 2004. Specifically, we make use of aunique and detailed dataset on several thousand UK firms to study individual organizations'incentives to adopt a particular technology. We find that there are significant internalcomplement effects - in other words, using an operating system and a DBMS from the samevendor seems to confer some complementarities. We also find evidence forcomplementarities between enterprise resource planning systems (ERP) and DBMS and findthat as ERP are frequently specific and customized, DBMS are unlikely to be changed oncethey have been customized to an ERP. We also find that organizations have an increasingtendency to use multiple DBMS on one site, which contradicts the notion that differentDBMS are near-perfect substitutes.
    Keywords: Database software, indirect network effects, technology adoption, microdata
    JEL: L86 O33
    Date: 2006–08
  4. By: Patrick Lünnemann; Ladislav Wintr
    Abstract: This paper studies the behaviour of Internet prices. It compares price rigidities on the Internet and in traditional brick-and-mortar stores and provides a cross-country perspective. The data set covers a broad range of items typically sold over the Internet. It includes more than 5 million daily price quotes downloaded from price comparison web sites in France, Germany, Italy, the UK and the US. The following results emerge from our analysis. First, and contrary to the recent findings for common CPI data, Internet prices in the EU countries do not change less often than online prices in the US. Second, prices on the Internet are not necessarily more flexible than prices in traditional brick-and-mortar stores. Third, there is substantial heterogeneity in the frequency of price change across shop types and product categories. Fourth, the average price change on the Internet is relatively large, but smaller than the respective values reported for CPI data. Finally, panel logit estimates suggest that the likelihood of observing a price change is a function of both state- and time-dependent factors.
    Date: 2006–06
  5. By: Sergio Clavijo; Carlos I. Rojas; Camila Salamanca; Germán Montoya
    Abstract: Colombia has witnessed a renewed interest in merging and acquiring financial institutions during 2003-2005. These have been “complementary mergers” that seek to exploit economies scale and scope. This process contrasts favorably with those mergers & acquisitions that occurred during the mid-1990s, which involved mainly “twin institutions” that lacked potential for gaining multiproduct efficiency. This document analyzes the need to remove some of the regulatory constraints that obstruct further exploitation of such economies of scale-scope and quantifies the “cost efficiencies” shown by the Colombian banking sector (1994-2005). At the aggregate level, we found (absolute) banking efficiency to be around 63%, a similar value to those found in related studies post-crisis. This implies that banks operating in Colombia have been able to recover their efficiency levels during postcrisis 2003-2005, except for mortgage institutions. We highlight regulatory barriers that could be removed to help the banking system move closer to the optimal production frontier.
    Date: 2006–07–31
  6. By: Nick Bloom; John Van Reenen
    Abstract: We use an innovative survey tool to collect management practice data from 732 medium sized manufacturingfirms in the US, France, Germany and the UK. These measures of managerial practice are strongly associatedwith firm-level productivity, profitability, Tobin's Q, sales growth and survival rates. Management practicesalso display significant cross-country differences with US firms on average better managed than Europeanfirms, and significant within-country differences with a long tail of extremely badly managed firms. We findthat poor management practices are more prevalent when (a) product market competition is weak and/or when(b) family-owned firms pass management control down to the eldest sons (primo geniture). European firmsreport lower levels of competition, while French and British firms also report substantially higher levels ofprimo geniture due to the influence of Norman legal origin and generous estate duty for family firms. Wecalculate that product market competition and family firms account for about half of the long tail of badlymanaged firms and up to two thirds of the American advantage over Europe in management practices.
    Keywords: management practices, productivity, competition, family firms
    JEL: L2 M2 O32 O33
    Date: 2006–03
  7. By: Philippe Aghion; Robin Burgess; Stephen Redding; Fabrizio Zilibotti
    Abstract: This paper investigates whether the effects, on registered manufacturing out- put,employment, entry and investment, of dismantling the .license raja system of central controlsregulating entry and production activity in this sector .vary across Indian states with differentlabor market regulations. The effects are found to be unequal depending on the institutionalenvironment in which industries are embedded. In particular, following de-licensing,industries located in states with pro-employer labor market institutions grew more quicklythan those in pro-worker environments. Our results emphasize how local institutions matterfor whether industry in a region benefits or is harmed by the nationwide delicensing reform.
    Keywords: delicensing, economic development, labour regulation
    JEL: O14 O18 O21
    Date: 2006–06
  8. By: William Brown
    Abstract: Product markets are the foundation on which industrial relations institutions are built. Trade union strength is partly dependent upon the state of the labour market, but it is imperfections in the product market that are the precondition of their winning benefits for their members. Sectoral agreements consequently formed the basis for collective bargaining in most industrialised countries. But international competition has destroyed this for much of the private sector. Quasi-markets have undermined it for much of the public sector. The paper assesses the empirical economic literature on the impact of product markets. It considers enthnographic insights into how competitive pressures feed through to managerial behaviour. It concludes with alternative strategies - co-operative bargaining, legislative intervention, and consumer campaigns - that seek to defend labour standards from competitive erosion.
    Keywords: product markets; John Commons; trade union power; collective bargaining; labour; wages; bargaining structure
    JEL: B52 M54 N34
    Date: 2006–08

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