nep-com New Economics Papers
on Industrial Competition
Issue of 2006‒09‒03
thirteen papers chosen by
Russell Pittman
US Department of Justice

  1. The Effects of Mergers with Dynamic Capacity Accumulation By Jiawei Chen
  2. Price Competition over Boundedly Rational Agents By B. Luppi
  3. Failing Firm Defense with Entry Deterrence By A. Fedele; M. Tognoni
  4. Complementarity between Product and Process innovation in a Monopoly Setting By A. Mantovani
  5. Competition, Innovation and Growth with Limited Commitment By Ramon Marimon; Vincenzo Quadrini
  6. Optimal Search Auctions By Cremer, Jaques; Spiegel, Yossi; Zheng, Charles
  7. Pseudo-Generic Products and Mergers in Pharmaceutical Markets By Granier, L.; Trinquard, S.
  8. Airline Schedule Competition: Product-Quality Choice in a Duopoly Model By Jan K. Brueckner; Ricardo Flores-Fillol
  9. Quantifying Equilibrium Network Externalities in the ACH Banking Industry By Daniel A. Ackerberg; Gautam Gowrisankaran
  10. Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development By Laarni Bulan; Christopher J. Mayer; C. Tsuriel Somerville
  11. Competing or Collaborating Siblings? Industrial and Trade Policies in India By Gunjan Sharma
  12. Competition, Innovation and Racing for Priority at the U.S. Patent and Trademark Office By Linda R. Cohen; Jun Ishii
  13. Why Hasn’t Economic Growth Killed Religion? By Michael McBride

  1. By: Jiawei Chen (Department of Economics, University of California-Irvine)
    Abstract: We investigate the price and welfare effects of mergers through simulations using a dynamic model of capacity accumulation in which firms produce near-homogeneous products and compete in prices. We find that mergers are welfare-reducing and that their long-run effects are worse than their short-run effects: in the long run average price increases further while total surplus and consumer surplus decrease further. A key feature of the model is that firms are ex ante identical but the industry evolves towards an asymmetric size distribution. If we instead fit the simulated data with an asymmetric costs model, which is a standard approach to explaining persistent asymmetries in market shares, we will systematically underestimate the long-run welfare-reducing effects of mergers, giving rise to misguided antitrust policies.
    Keywords: Merger effects; Dynamic oligopoly; Capacity; Cost misspecification; Simulation
    JEL: C73 D24 L11 L41
    Date: 2006–03
  2. By: B. Luppi
    Date: 2006
  3. By: A. Fedele; M. Tognoni
    Date: 2006
  4. By: A. Mantovani
    Date: 2005
  5. By: Ramon Marimon; Vincenzo Quadrini
    Abstract: We study how barriers to competition---such as restrictions to business start-up and strict enforcement of covenants or IPR---affect the investment in knowledge capital when contracts are not enforceable. These barriers lower the competition for human capital and reduce the incentive to accumulate knowledge. We show in a dynamic general equilibrium model that this mechanism has the potential to account for significant cross-country income inequality.
    JEL: L14 L16 O4
    Date: 2006–08
  6. By: Cremer, Jaques; Spiegel, Yossi; Zheng, Charles
    Abstract: We study the design of profit maximizing single unit auctions under the assumption that the seller needs to incur costs to contact prospective bidders and inform them about the auction. With independent bidders’ types and possibly interdependent valuations, the seller’s problem can be reduced to a search problem in which the surplus is measured in terms of virtual utilities minus search costs. Compared to the socially efficient mechanism, the optimal mechanism features fewer participants, longer search conditional on the same set of participants, and inefficient sequence of entry.
    Date: 2006–08–24
  7. By: Granier, L.; Trinquard, S.
    Abstract: This paper fills the gap in the theoretical literature concerning mergers between brand-name and generic laboratories in pharmaceutical markets. To prevent generic firms from increasing their market share, some brand-name furms produce generics themselves, called pseudo-generics, enabling them to set up barriers to entry. We develop this topic by considering the pseudo-generics production as a mergers.catalyst. We show, in a duopoly model with substitutable goods, in which a brand-name firm and a generic firm compete à la Cournot, that a brand-name company always has an incentive to purchase its competitor. The key insight of this paper is that the brand-name laboratory can increase its merger gain by producing pseudo-generics beforehand. In some cases, pseudo-generics would not otherwise be produced.
    Keywords: Mergers, Pharmaceutical Market, Pseudo-Generics.
    JEL: I11 L12
    Date: 2006
  8. By: Jan K. Brueckner (Department of Economics, University of California-Irvine); Ricardo Flores-Fillol (Departament d’Economia i d’Historia Economica, Universitat Autonoma de Barcelona)
    Abstract: This paper presents a simple model of airline schedule competition that circumvents the complexities of the spatial approach used in earlier papers. Consumers choose between two duopoly carriers, each of which has evenly spaced flights, by comparing the combinations of fare and expected schedule delay that they offer. In contrast to the spatial approach, the particular departure times of individual flights are thus not relevant. The model generates a number of useful comparative-static predictions, while welfare analysis shows that equilibrium flight frequencies tend to be inefficiently low.
    Date: 2006–04
  9. By: Daniel A. Ackerberg; Gautam Gowrisankaran
    Abstract: We seek to determine the causes and magnitudes of network externalities for the automated clearinghouse (ACH) electronic payments system. We construct an equilibrium model of customer and bank adoption of ACH. We structurally estimate the parameters of the model using an indirect inference procedure and panel data. The parameters are identified from exogenous variation in the adoption decisions of banks based outside the network and other factors. We find that most of the impediment to ACH adoption is from large customer fixed costs of adoption. Policies to provide moderate subsidies to customers and larger subsidies to banks for ACH adoption could increase welfare significantly.
    JEL: L0 L13 L86 L88
    Date: 2006–08
  10. By: Laarni Bulan; Christopher J. Mayer; C. Tsuriel Somerville
    Abstract: We examine the extent to which uncertainty delays investment and the effect of competition on this relationship using a sample of 1,214 condominium developments in Vancouver, Canada built from 1979-1998. We find that increases in both idiosyncratic and systematic risk lead developers to delay new real estate investments. Empirically, a one-standard deviation increase in the return volatility reduces the probability of investment by 13 percent, equivalent to a 9 percent decline in real prices. Increases in the number of potential competitors located near a project negate the negative relationship between idiosyncratic risk and development. These results support models in which competition erodes option values and provide clear evidence for the real options framework over alternatives such as simple risk aversion.
    JEL: D4 D52 E23 R3
    Date: 2006–08
  11. By: Gunjan Sharma (Department of Economics, University of Missouri-Columbia)
    Abstract: This paper investigates the link between economic de-regulation–domestic as well as trade de-regulation–and firm-level productivity using two unique data sets. We use the industrial licensing regime in India (operating from the 1950s onwards) and its gradual relaxation during the 1980s and 1990s to test whether industrial de-regulation that leads to more competition domestically, affects firm-level productivity. To our knowledge, ours is the only detailed data set on Indian industrial policy. Our firm-level data for the period 1980-94 is a census of firms in India and has been rarely used in literature. We also use the interesting chronology of reforms in India (industrial de-regulation in the 1980s and trade reforms in 1991) to test whether industries that faced more competition domestically tend to perform better when facing foreign competition. Our identification strategy uses an important institutional feature of Indian policy. Firms with assets below a certain defined rupee threshold were exempt from licensing requirements. This institutional feature provides us within-industry variation that allows us to identify the interaction between de-licensing and exemption status. We find that industrial de-regulation during the 1980s led to a significant rise in firm productivity. Further preliminary results suggest that there exists a strategic complementarity relationship between industrial and trade policies–industries and firms that were de-licensed tend to perform better vis productivity after trade liberalization. Our results are robust to the inclusion of a wide variety of firm and industry fixed effects and controls for policies other than de-licensing that may affect productivity. This paper contributes to the literature by being the only detailed empirical analysis of the industrial licensing regime in India, especially the de-licensing that took place during the 1980s and by providing evidence of the crucial link between trade and industrial de-regulation.
    Keywords: India, Trade liberalization, reforms, industrial policy, industrial licensing, firm-level productivity, market structure, complementarity
    JEL: D82 C7
    Date: 2006–08–29
  12. By: Linda R. Cohen (Department of Economics, University of California-Irvine); Jun Ishii (Department of Economics, University of California-Irvine)
    Abstract: The U.S. Patent and Trademark Office resolves patent priority disputes in patent interference cases. Using a random sample of cases declared between 1988 and 1994, we establish a connection between patent interferences and patent races, and then use the data to consider some key issues in dynamic competition and innovation. We look at the incidence and distribution of patent races by technology, evidence for strategic delay of innovation by incumbent firms, and evidence that patent races moderate incentives to delay. Our results have implications for patent policy in general and for evaluating the U.S. “first to invent” patent priority rule.
    Keywords: Patent race, Patent interference, US Board of Patent Appeals and Interferences, Patent litigation; Innovation; Research and development
    JEL: K41 L20 O31 O34
    Date: 2005–08
  13. By: Michael McBride (Department of Economics, University of California-Irvine)
    Abstract: Economic growth has not led to a decline in religion despite past predictions that it would. I use a formal model of religious competition to show how economic growth produces counteracting effects on religious participation in an open religious market, while economic growth will have little effect in a religious market that is already secularized due to religious regulations. Theories predicting the decline of religion due to rising opportunity costs of religious demand and supply ignore countervailing influences.
    Keywords: Religion; Hotelling, entry deterrence
    JEL: D23 D40 L10 Z12
    Date: 2005–08

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