|
on Industrial Competition |
| By: | Rabah Amir; Effrosyni Diamantoudi; Licun Xue |
| Abstract: | In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity’s final cost. At > the Bayesian equilibrium, a bilateral merger is profitable provided the non-merged firms sufficiently believe that the merger will generate large enough efficiency gains, even if ex post none actually materialize. The effects of the merger on market performance are shown to follow similar threshold rules. The findings are broadly consistent with stylized facts. An extensive welfare analysis is conducted, bringing out the key role of effciency gains and the different implications of consumer and social welfare standards. |
| JEL: | D43 L11 L22 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcl:mclwop:2005-07&r=com |
| By: | Hassan Benchekroun; Licun Xue |
| Abstract: | We study the stability of cartels in a differential game model of oligopoly with sticky prices (Fershtman and Kamien 1987). We show that when firms use closed-loop strategies and the rate of increase of the marginal cost is .small enough., the grand coalition (i.e., when the cartel includes all firms) is stable: it is unprofitable for a .firm to exit the cartel. Moreover, a cartel of 3 firms is stable for any positive rate of increase of the marginal cost: it is not profitable for an insider firm to exit the coalition, nor it is profitable for an outsider firm to join the coalition. When firms use open-loop strategies the grand coalition is never stable; moreover, we show that only a cartel of size 2 can be stable and it is so only when the rate of increase of the marginal cost is large enough. |
| JEL: | D43 L13 L12 C72 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcl:mclwop:2005-08&r=com |
| By: | Baldwin, John R.; Gu, Wulong |
| Abstract: | This paper investigates the extent to which productivity growth is the result of firm turnover as output is shifted from one firm to another, driven by the competitive process. Turnover occurs as some firms gain market share and others lose it. Some of the resulting turnover is due to entry and exit. Another part arises from growth and decline in incumbent continuing firms. This paper proposes a method for measuring the impact of firm turnover on productivity growth and shows that it is far more important than many previous empirical studies have concluded. It argues that firm turnover associated with competition is the main source of aggregate labour productivity growth in Canadian manufacturing industries. |
| Keywords: | National accounts, Business enterprises, Productivity, Business conditions |
| Date: | 2006–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2006042e&r=com |
| By: | Dennis Gaertner (Socioeconomic Institute, University of Zurich); Armin Schmutzler (Socioeconomic Institute, University of Zurich) |
| Abstract: | We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post mechanisms, which use both players’ reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports. |
| Keywords: | Mergers, Mechanism Design, Asymmetric Information, Interdependent Valuations, Efficient Mechanisms |
| JEL: | D82 L10 G34 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0607&r=com |
| By: | Philippe De Donder; John E. Roemer |
| Date: | 2006–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000436&r=com |
| By: | Winston T.H. Koh (School of Economics and Social Sciences, Singapore Management University) |
| Abstract: | This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination. |
| Keywords: | intertemporal price discrimination, durable good, household demand, network externality |
| JEL: | D40 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:siu:wpaper:05-2005&r=com |
| By: | María José Gil-Moltó (Dept of Economics, Loughborough University); Joanna Poyago-Theotoky (Dept of Economics, Loughborough University); Vasileios Zikos (Dept of Economics, Loughborough University) |
| Abstract: | We investigate the use of subsidies to R&D, both in a mixed and a private duopoly market. We show that the socially optimal R&D subsidy is positive and increasing in the degree of spillovers both in the private and the mixed duopoly, although it is lower for the former than for the latter. We also find support for the empirical claim that privatization is followed by a scaling down of the R&D activity. A comparative static analysis of welfare levels suggests that privatization is welfare detrimental, which lends some support to the views against the widespread adoption of privatization programs. |
| Keywords: | mixed duopoly, process innovation, R&D subsidies, privatisation, spillovers. |
| JEL: | L31 L32 O38 L13 L50 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_17&r=com |
| By: | Alan E. Woodfield (University of Canterbury) |
| Abstract: | This paper generalizes the two-period model of Watt (2000) who demonstrates the possibility of optimal accommodation of a pirate when the royalty rate applying to a creation is uniform and second-period Cournot competition applies. Admitting nonlinear contracts with period-specific royalty rates that leave total payments unchanged, simulation analysis shows that a producer of originals does better to increase the royalty rate in period 1 and decrease the rate to a negative level in period 2, thereby more than offsetting the usual cost advantage available to a pirate. Watt's illustrative examples regarding piracy accommodation (but not piracy exclusion) are overturned when a nonlinear contract is chosen optimally, although accommodation remains optimal in some other cases. Further, where exclusion is impossible under uniform royalties, cases exist where exclusion is feasible under nonlinear royalties. Even so, accommodation may be a preferable strategy. |
| Keywords: | accommodating copyright piracy; nonlinear royalty contracts |
| JEL: | D43 K11 L13 |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:06/01&r=com |
| By: | CRÉMER, Jacques; CREMER, Helmuth; DE DONDER, Philippe |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:5853&r=com |
| By: | Johan N.M. Lagerlöf (Department of Economics, Royal Holloway, University of London) |
| Abstract: | I develop a model of rent seeking with informational foundations and an arbitrary number of rent seekers, and I compare the results with Tullock's (1980) classic model where the influence activities are "black-boxed." Given the microfoundations, the welfare consequences of rent seeking can be studied. In particular, I show that competition among rent seekers can be socially beneficial, since the additional information that the decision maker gets access to makes the increase in rent-seeking expenditures worthwhile. However, the analysis also highlights a logic that, under natural parameter assumptions, makes the rent seekers spend more resources on rent seeking than is in society's interest, which is consistent with the spirit of the rent-seeking literature. |
| Keywords: | Rent seeking, competition, lobbying, information acquisition, disclosure, welfare |
| JEL: | D42 D43 D72 D83 L13 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:hol:holodi:0604&r=com |
| By: | Roger Bjørnstad and Kjartan Øren Kalstad (Statistics Norway) |
| Abstract: | Existing literature have focused on the influence of institutional factors on wage determination when explaining the prolonged cross-country differences in unemployment. Although coordination of wage bargaining probably affects entry barriers and competition in product markets as well, research on price determination has typically not considered such factors. In this paper, an imperfect competition model - where the price markup depends on coordination of wage bargaining (and relative prices) - is set up and estimated on a panel of 15 OECD-countries. We derive a hypothesis that coordination has two separate effects on prices, i.e. an indirect effect through its effect on wages and a direct effect on the price markup. The estimates show that when we correct for the effect of coordination on wages, consumer prices may be as much as 21 percent higher in countries like Italy, the Netherlands, Ireland, Austria and Norway as compared to Canada, the US and the UK, due to the effect of coordination on the price markup. Since coordination probably has a dampening effect on wages, this may explain why many researchers have been unable to find any clear effect of coordination on unemployment in reduced form analysis. |
| Keywords: | Imperfect competition model; price markup; labor market institutions; unemployment; panel data model. |
| JEL: | C23 E31 J51 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:470&r=com |
| By: | Rajeev Kohli (Columbia University); Raaj Sah (School of Economics and Social Sciences, Singapore Management University) |
| Abstract: | This paper: (i) reports an empirical regularity in the market shares of brands; (ii) presents a theoretical framework for understanding the observed regularity; (iii) adduces additional empirical consequences of the framework, which are some counterintuitive relationships among market shares of brands across different product categories; and (iv) presents empirical evidence for these consequences, thus providing additional support for the theoretical framework. Our cross-sectional data on market shares consists of 1171 brands in 91 product categories of foods and sporting goods sold in the US. If we assign a lower rank to a brand with a higher market share, then the key empirical regularity is that, in each category, the ratio of market shares between two successively-ranked brands becomes smaller as one progresses from higher-ranked to lower-ranked brands. The power law represents these patterns well, in an absolute sense, and better than an alternative model, namely, the exponential form, which has been studied in the literature but without having been compared to any alternative. The latter form predicts that the ratio of the market shares of any two successively ranked brands is a constant. We present some potential implications of our findings for marketing practice and research. We also offer an interpretation of the previously known square-root relationship between market share and the order of entry of firms into an industry. The theoretical framework that we present for understanding the patterns reported here shares its foundation with that of the familiar Dirichlet-multinomial paradigm of brand purchases. This framework has some intuitive interpretations; it accommodates multiple product categories; and it allows for the entry and exit of brands over time. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:siu:wpaper:11-2005&r=com |
| By: | Tong Li (Institute for Fiscal Studies and Vanderbilt University); Xiaoyong Zheng |
| Abstract: | Motivated by several interesting features of the highway mowing auction data from Texas Department of Transportation (TDoT), we propose a two-stage procurement auction model with endogenous entry and uncertain number of actual bidders. Our entry and bidding models pro vide several interesting implications. For the first time, we show that even within an independent private value paradigm, as the number of potential bidders increases, bidders equilibrium bidding behavior may become less aggressive because the entry effect is always positive and may dominate the negative competition effect. We also show that it is possible that the relationship between the expected winning bid and the number of potential bidders is non-monotone decreasing as well. We then develop an empirical model of entry and bidding controlling for unobserved auction heterogeneity to analyze the data. The structural estimates are used to quantify the entry effect and the competition effect with regard to the individual bids and the procurement cost, as well as the savings for the government with regard to the procurement cost when the entry cost is reduced. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:13/06&r=com |
| By: | Rachel Griffith (Institute for Fiscal Studies); Rupert Harrison (Institute for Fiscal Studies and University College London); Helen Simpson (Institute for Fiscal Studies) |
| Abstract: | European Union countries have implemented widespread reforms to product markets in order to stimulate competition, innovation and economic growth. We provide empirical evidence that the reforms carried out under the EU Single Market Programme (SMP) were associated with increased product market competition, as measured by a reduction in average profitability, and with a subsequent increase in innovation intensity and productivity growth for manufacturing sectors. In our analysis we exploit exogenous variation in the expected impact of the SMP across countries and industries to identify the effects of reforms on average profitability, and the effects of profitability on innovation and productivity growth. |
| JEL: | L1 O31 O47 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:06/17&r=com |
| By: | Gerald D. Jaynes |
| Date: | 2006–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000431&r=com |
| By: | Renneboog,Luc; Szilagyi,Peter G. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper contributes to the comparative corporate governance literature by showing how crosscountry differences in governance and legal standards affect the bondholder wealth effects of European merger and acquisitions (M&As). Using investment-grade Eurobonds, we find some remarkable results. Firstly, M&As involving European firms are considerably more bondholder-friendly than are US domestic deals. Bidding firm bondholders earn economically significant positive returns, while target bondholders incur positive but insignificant returns. Overall, acquisitions do generate value to European bidding firms, but most of the wealth effect is captured by the bondholders. Secondly, bondholder gains in both bidding and target firms are systematically higher in M&As that involve Continental European firms. Thirdly, bidder abnormal bond returns are lower in cross-border deals. However, this is counterbalanced if creditor rights and the efficiency of credit contract enforcement are stronger in the target country. There is also strong evidence that, consistent with cross-border spillovers, improved creditor protection redistributes wealth from shareholders to bondholders. Finally, we document that bondholder wealth changes are subject to changes in asset risk and to a negative listing effect similar to that previously reported for changes in shareholder wealth. |
| Keywords: | Bondholder returns;Eurobonds;Mergers and acquisitions;Creditor rights; Takeover;Corporate governance;Shareholder returns;M&A;Insolvency |
| JEL: | G34 G32 G12 G14 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200683&r=com |
| By: | Harold Creusen; Bert Minne; Henry van der Wiel |
| Abstract: | In the 1990s policy makers took various measures to stimulate competition. This memorandum investigates the question in which direction competition in the Dutch market sector has changed. Four competition indicators are used. These indicators are derived from a database of 87 000 firms as well as from the input-output tables of the National Accounts. Data availability limits the analysis to the period 1993-2001. Remarkably, the indicators do not suggest that competition increased economy-wide. All show that competition changes have been rather small in many industries, but a considerable number of industries experience a sharp rise or strong fall in competition. Nonetheless, the indicators frequently contradict each other on the change in competition at the industry level. These differences can partly be traced back to differences in their economic concepts. In theory, the indicators can differ, because they respond differently to a reallocation of output from inefficient to efficient firms. Econometric and statistical tests provide some but mainly insignificant evidence to support this hypothesis. |
| Keywords: | competition; measurement; competition policy |
| JEL: | D40 L10 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:memodm:163&r=com |
| By: | Martin Gaynor |
| Abstract: | The goal of this paper is to identify key issues concerning the nature of competition in health care markets and its impacts on quality and social welfare and to identify pertinent findings from the theoretical and empirical literature on this topic. The theoretical literature in economics on competition and quality, the theoretical literature in health economics on this topic, and the empirical findings on competition and quality in health care markets are surveyed and their findings assessed. Theory is clear that competition increases quality and improves consumer welfare when prices are regulated (for prices above marginal cost), although the impacts on social welfare are ambiguous. When firms set both price and quality, both the positive and normative impacts of competition are ambiguous. The body of empirical work in this area is growing rapidly. At present it consists entirely of work on hospital markets. The bulk of the empirical evidence for Medicare patients shows that quality is higher in more competitive markets. The empirical results for privately insured patients are mixed across studies. |
| Keywords: | competition,health care,quality,antitrust, |
| JEL: | I11 L10 L40 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:bri:cmpowp:06/151&r=com |
| By: | C'line Gondat-Larralde; Erlend Nier |
| Abstract: | This paper provides an analysis of the competitive process in the market for personal current accounts in the United Kingdom. Using survey data, we first describe some stylised developments in this market over our sample period (1996-2001). We find a gradual change in the distribution of market shares over time. This contrasts with a marked dispersion in price, which appears to persist through time. Analysing the evolution of market shares, we address two key questions: (i) are bank market shares responding to price differentials?; (ii) if not, which type of imperfect competition best fits the data? Our conclusions point to the existence of customer switching costs as a key determinant of the nature of competition in the market for personal current accounts. The results of this study are therefore broadly supportive of a number of recent initiatives to facilitate switching bank accounts in the United Kingdom. |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:292&r=com |
| By: | Nell, Martin; Richter, Andreas; Schiller, Jörg |
| Abstract: | This paper looks at markets characterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequen¬ces of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insureds actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers, if repair markets are imperfect. |
| Keywords: | insurance; incomplete contracts; repair markets |
| JEL: | C72 D43 G22 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:msmdpa:1187&r=com |
| By: | Rasha Ahmed (University of Connecticut); Kathleen Segerson (University of Connecticut) |
| Abstract: | Recently, some industries have collectively agreed not to produce models that do not meet an energy efficiency (and hence an environmental) standard. This paper presents a simple model that can be used to examine a voluntary collective agreement to limit or completely eliminate the low efficiency model of a given product (e.g., a low efficiency washing machine). We show that, when there is competition between firms, a collective agreement to limit or even eliminate production of the polluting model can actually increase profits for all firms in the industry. This suggests that a collective agreement of this type might actually be beneficial to firms, while at the same time improving environmental quality. However, the implicit enforcement that comes from the public nature of the commitment is necessary to ensure this outcome. This suggests that, by promoting such agreements, policymakers may be able to achieve substantial environmental gains with relatively little inducement. The impact on social welfare will then depend on whether these gains are sufficiently large to offset consumer losses from reductions in product variety and the associated price increases. |
| Keywords: | Voluntary agreements, collective agreements, energy/fuel efficiency |
| JEL: | Q48 Q58 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2006-18&r=com |
| By: | CREMER, Helmuth; DE DONDER, Philippe; DUDLEY, Paul; RODRIGUEZ, Frank |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:6007&r=com |
| By: | Hai Zhong (University of Western Ontario) |
| Abstract: | In recent years, there are growing concerns on the issue of parallel trade on pharmaceuticals. It is an existing issue in the European Union and an emerging issue in North America and Asia. In this paper, a model is developed to explore the following issues in the presence of parallel trade: 1) the change of firm's profits; 2) drug price, supply and social welfare in the importing country; 3) drug price, supply and social welfare in the exporting country. The possible policy reactions of the government in the two countries are also discussed. By relaxing some assumptions, I extend the existing studies to a more general situation. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:epuwoc:20065&r=com |
| By: | Ursel Baumann; Glenn Hoggarth; Darren Pain |
| Abstract: | This paper investigates the extent to which changes in the quantity and cost of non-bank finance impact on the quantity and interest cost of UK-owned banks' corporate lending. The results give some support to the view that there is substitution between market finance and bank loans - loan growth rises (falls) during periods when corporate bond spreads widen (decline). In particular, bank loans seem to substitute for other forms of finance in some periods of market stress such as in 1998 Q3. Moreover, this increase in credit seems to be supplied on unchanged terms, perhaps suggesting that banks passively accommodate changes in corporate loan demand. During other episodes of disturbances in non-bank finance, such as when bond or commercial paper issuance falls sharply, banks appear to increase their loan rates, perhaps reflecting greater perceived borrower risk or some reduction in banks' own risk appetite. |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:274&r=com |