nep-com New Economics Papers
on Industrial Competition
Issue of 2007‒04‒21
25 papers chosen by
Russell Pittman
US Department of Justice

  1. DOWNSTREAM MERGERS AND UPSTREAM INVESTMENT By Ramón Faulí-Oller; Joel Sandonís; Juana Santamaria-Garcia
  2. Exclusionary Pricing and Rebates When Scale Matters By Karlinger, Liliane; Motta, Massimo
  3. European Competition Policy in International Markets By BERTRAND, Olivier; IVALDI, Marc
  4. Business Groups in Emerging Markets-Financial Control & Sequential Investment By Christa Hainz
  5. Mergers of Equals & Unequals By Smeets, Valérie; Ierulli, Kathryn; Gibbs, Michael
  6. Testing the Effectiveness of Regulation and Competition on Cable Television Rates By John S. Ying; Mary T. Kelly
  7. Inventories and Endogenous Stackelberg Hierarchy in Two-Period Cournot Oligopoly By MITRAILLE, Sébastien; MOREAUX, Michel
  9. Can minimum prices assure the quality of professional services? By Georg Meran; Reimund Schwarze
  10. Barriers to Entry, Deregulation and Workplace Training By Andrea Bassanini; Giorgio Brunello
  11. Retail Price Regulation and Innovation: Reference Pricing in the Pharmaceutical Industry By BARDEY, David; BOMMIER, Antoine; JULLIEN, Bruno
  12. Policy, Economic Federalism & Product Market Entry: The Indian Experience By Sumon Bhaumik; Shubhasish Gangopadhyay; Shagun Krishnan
  13. The Intensity of Competition in the Hotelling Model: A New Generalization and Applications By Kim, Jaesoo
  14. Oligopolistic Competition in the Japanese Wholesale Electricity Market: A Linear Complementarity Approach By TANAKA Makoto
  15. The Effects of Trade Liberalization Between High and Low Cost Countries when Merger Behavior is Endogenous By CALMETTE, Marie-Françoise
  16. Can we design a market for competitive health insurance? CHERE Discussion Paper No 53 By Jane Hall
  17. Tying in Two-Sided Markets and the Honor All Cards Rule By ROCHET, Jean-Charles; TIROLE, Jean
  18. STORE VS. NATIONAL BRANDS: A PRODUCT LINE MIX PUZZLE By José J. Sempere Monerris; Rafael Moner Colonques; Amparo Urbano
  19. The Old and the New Reform of Chile’s Power Industry By Soledad Arellano
  21. Robust Monopoly Pricing By Dirk Bergemann; Karl Schlag
  22. Insurance and monopoly power in a mixed private/public hospital system, CHERE Discussion Paper No 55 By Donald J Wright
  23. Tying and Freebies in Two-Sided Markets By AMELIO, Andrea; JULLIEN, Bruno
  24. The Market of Academic Journals: Empirical Evidence from Data on French Libraries By DUBOIS, Pierre; HERNANDEZ-PEREZ, Adriana; IVALDI, Marc
  25. Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia By Alexei Karas; William Pyle; Koen Schoors

  1. By: Ramón Faulí-Oller (Universidad de Alicante); Joel Sandonís (Universidad de Alicante); Juana Santamaria-Garcia (Universidad de Alicante)
    Abstract: In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.
    Keywords: downstream mergers, upstream innovation, competition
    Date: 2007–04
  2. By: Karlinger, Liliane; Motta, Massimo
    Abstract: We consider an incumbent firm and a more efficient entrant, both offering a network good to several asymmetric buyers. The incumbent disposes of an installed base, while the entrant has a network of size zero at the outset, and needs to attract a critical mass of buyers to operate. We analyze different price schemes (uniform pricing, implicit price discrimination - or rebates, explicit price discrimination) and show that the schemes which - for given market structure - induce a higher level of welfare are also those under which the incumbent is more likely to exclude the rival.
    Keywords: abuse of dominance; exclusionary practices; network industry; price discrimination; rebates
    JEL: L11 L14 L42
    Date: 2007–04
  3. By: BERTRAND, Olivier; IVALDI, Marc
    Date: 2006–11
  4. By: Christa Hainz
    Abstract: Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate.
    Keywords: Business groups, self-enforcing contract, institutions, internal capital market
    JEL: G31 G32 G34 K49 L22
    Date: 2006–06–01
  5. By: Smeets, Valérie (Department of Economics, Aarhus School of Business); Ierulli, Kathryn (Graduate School of Business); Gibbs, Michael (Graduate School of Business)
    Abstract: We examine the organizational dynamics of integration post merger. Our basic question is whether <p> there is evidence of conflict between employees from the two merging firms. Such conflict can arise <p> for several reasons, including firm-specific human capital, corporate culture, power, or favoritism. <p> We examine this issue using a sample of Danish mergers. The results are consistent with the basic <p> hypothesis. Controlling for other effects, employees from the acquirer fare better than employees <p> from the acquired firm, suggesting that they have greater power in the newly merged hierarchy. As <p> a separate effect, the more that either firm dominates the other in terms of number of employees, <p> the better do its employees fare compared to employees from the other firm. This suggests that majority <p> / minority status is also important to assimilation of workers, much as in ethnic conflicts. Finally, <p> greater overlap of operations decreases turnover. This finding is inconsistent with the view <p> that workers of the two firms may be better substitutes for each other. However, the result and our <p> other findings are consistent with the view that more similar workers (in terms of either firm- or <p> industry-specific human capital) are easier to integrate post merger
    Keywords: Mergers; internal organization; conflicts; personnel economics
    JEL: G34 J63 M14
    Date: 2006–01–01
  6. By: John S. Ying (Department of Economics,University of Delaware); Mary T. Kelly (Department of Economics, Villanova University)
    Abstract: Regulation of the cable television industry was marked by remarkable periods of deregulation, re-regulation, and re-deregulation during the 1980s and 1990s. Using FCC firm-level survey data spanning 1993 to 2001, we model and econometrically estimate the effect of regulation and competition on cable rates. Our calculations indicate that while regulation lowered rates for small system operators, it raised them for medium and large systems. Meanwhile, competition consistently decreased rates from 5.6 to 8.8 percent, with even larger declines during periods of regulation. Our results suggest that competition is more effective than regulation in containing cable prices.
    Keywords: cable rates, regulation, competition
    JEL: L51 L96
  7. By: MITRAILLE, Sébastien; MOREAUX, Michel
    JEL: L13 D43
    Date: 2007–01
  8. By: Ramón Faulí-Oller (Universidad de Alicante); Joel Sandonís (Universidad de Alicante)
    Abstract: An independent research laboratory owns a patented process innovation that can be licensed by means of an auction to two Cournot duopolists producing differentiated goods. For large innovations and close enough substitute goods the patentee auctions o¤ only one license, preventing the full diffusion of the innovation. For this range of parameters, however, if the laboratory merged with one of the firms in the industry, full technology diffusion would be implemented as the merged entity would always license the innovation to the rival firm. This explains that, in this context, a vertical merger is both profitable and welfare improving.
    Keywords: Patent licensing, two-part tariff contracts, vertical mergers
    JEL: L13 L23
    Date: 2007–04
  9. By: Georg Meran; Reimund Schwarze
    Abstract: This papers studies the effects on service quality and consumer surplus of a minimum price which is fixed by a bureaucratic non-monopolistic professional association. It shows that the price set by a Niskanen-type professional assocation will maximize consumer surplus only if consumers demand the highest possible average quality. If consumers demand services of lesser quality, the association’s price will be too high if measured by consumer surplus. Moreover we show that a de-regulated market will always reproduce the favourable result of a uniformly high price in the case of top quality demand while delivering superior results in the case of a mixed demand for high and low quality services.
    Keywords: Liberal professions, price regulation, quality, professional association, self-regulation, EU competition policy, intrinsic motivation
    JEL: L15 J44 K21
    Date: 2007–01
  10. By: Andrea Bassanini (OECD, CEPN, University of Paris 13 and ERMES, University of Paris 2); Giorgio Brunello (University of Padova, KIER Kyoto, CESifo and IZA)
    Abstract: We develop a theoretical and empirical analysis of the impact of barriers to entry on workplace training. Our theoretical model yields ambiguous predictions on the sign of this relationship. On the one hand, given the number of firms, a deregulation reduces profits per unit of output, and thereby reduces training. On the other hand, the number of firms increases, and so does the output gain from training, which facilitates the investment in training. Our numerical simulation shows that for reasonable values of the parameters a negative relationship prevails. We use repeated cross section data from the European Labour Force Survey to investigate empirically the relationship between product market regulation and training incidence in a sample of 15 European countries and 13 industrial sectors, which we follow for about 7 years. Our empirical results are unambiguous and show that an increase in product market deregulation generates a sizeable increase in training incidence.
    Keywords: training, product market competition, Europe
    JEL: J24 L11
    Date: 2007–04
  11. By: BARDEY, David; BOMMIER, Antoine; JULLIEN, Bruno
    JEL: I18 L11 L15 L51
    Date: 2006–12
  12. By: Sumon Bhaumik; Shubhasish Gangopadhyay; Shagun Krishnan
    Abstract: Productivity growth has long been associated with, among others, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm’s ability to enter a product market than strategic positions adopted by the incumbent firms. We examine this proposition in the context of India where the industrial policies of the eighties and the nineties are widely believed to be pro-incumbent and procompetition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we also take into consideration the possibility that the greater economic federalism associated with the reforms of the nineties may have affected the distribution of industrial units across states after 1991. Our paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.
    Keywords: Entry, Institutions, Regulations, India, Textiles, Electrical Machinery, Reforms
    JEL: L11 L52 L64 L67 O14 O17
    Date: 2006–11–01
  13. By: Kim, Jaesoo
    Abstract: I develop a simple Hotelling model which corresponds the distribution of consumer preferences to the intensity of competition. This is a new perspective on consumer distribution in the Hotelling model. I impose two properties, the mean preserving spread (MPS) and monotone likelihood ratio property (MLRP), on distribution functions. These properties provide a way to measure the intensity of competition in Hotelling model. This approach sheds a new light on various issues. Non-uniform distributions can play a significant role in reversing well-known results that the uniform distribution has revealed or in discovering unknown results that the uniform distribution could not demonstrate. As examples, I study three issues such as incentives to innovate, the preference based price discrimination, and the value of information.
    Keywords: Hotelling model; Intensity of competition; Mean-preserving spread (contraction); Monotone likelihood ratio property; Innovation; Preferenced based price discrimination; The value of information
    JEL: L10
    Date: 2007–03
  14. By: TANAKA Makoto
    Abstract: Using a linear complementarity approach, we simulate the Japanese wholesale electricity market as a transmission-constrained Cournot market. Following Hobbs (2001), our model adopts the Cournot assumption in the energy market and the Bertrand assumption in the transmission market. The Bertrand assumption means that generators consider transmission charges as being exogenous, which can be interpreted as a kind of bounded rationality. We then present a simulation analysis of the Japanese wholesale electricity market, considering eight areas linked by interconnection transmission lines. Specifically, this paper examines the potential effects of both investment in interconnection transmission lines and the divestiture of dominant players' power plants.
    Date: 2007–04
  15. By: CALMETTE, Marie-Françoise
    JEL: F15 F23 L13 R38
    Date: 2007
  16. By: Jane Hall (CHERE, University of Technology, Sydney)
    Abstract: The topic of this paper is whether it is possible, given the current state of knowledge and technology, to design the appropriate market structure for managed competition. The next section reviews market failure in the private health insurance market. The subsequent two sections describe the principles of managed competition and its development and application in other countries. Then, the paper outlines recent developments in private health insurance policy in Australia, and proposals to apply managed competition in this country. The required design of the managed competition market place is described, and four major issues, risk adjustment, budget holding, consumer behaviour, and insurer behaviour, are identified. The final sections of the paper review the evidence on these four issues to determine if managed competition can be implemented, given current knowledge.
    Keywords: Health Insurance, Managed competition, Australia
    JEL: I11
  17. By: ROCHET, Jean-Charles; TIROLE, Jean
    Date: 2006–02
  18. By: José J. Sempere Monerris (Universitat de València); Rafael Moner Colonques (Universitat de València); Amparo Urbano (Universitat de València)
    Abstract: This paper examines retailers' strategic decisions about store brand introduction when each retailer can stock a limited number of brands. The different product line mix equilibria depend on demand parameters that measure the cross-effect across national and store brands and the cross-effect within each brand type, thus leading to a simple testable implication. Store brand introduction is determined by the combination of the three effects that result from replacing a national brand by a store brand; the direct effect, the exclusivity effect and the in-store effect. Interestingly enough, we identify conditions under which similar retailers take different decisions concerning their product line mix.
    Keywords: store brands, retail duopoly, product line mix
    JEL: L13 L23
    Date: 2007–04
  19. By: Soledad Arellano
    Abstract: Chile’s regulatory framework introduced in 1981 remained unchanged for more than 20 years. The reform had a positive effect but several warning signals appeared by the end of the 90s indicating the need to introduce changes. The most important problems were the lack of competition in the generation segment and the reluctance to expand capacity. These problems were appropriately faced by two amendments to the law (2004 -2005). Knowing the experience of Chile is relevant because the lessons learnt can be applied to other countries which have adopted the same model. In addition it illustrates that the power industry can work reasonably well under a “regulated” competition framework, different from the de-regulation model currently being discussed in other countries.
    Date: 2006
  20. By: Katja Zajc Kejžar
    Abstract: This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994-2003 period by assessing the impact of the entry and presence of foreign firms on a domestic firm’s probability of exiting. The results confirm that not only do foreign entrants tend to be above-average productive but they also find it easier to exit (particularly those entering in the form of acquisitions). Further, the least efficient firms are found to experience a drop in their survival probability upon a foreign firm’s entry. In addition, a foreign firm’s entry seems to stimulate the selection process not only within the industry but also through backward linkages in the upstream supplying industries. Regarding the productivity spillover effects from foreign to local firms the results suggest that they mostly operate through vertical linkages rather than within the same industry.
    Keywords: foreign direct investment, firm selection process, crowding out, productivity spillovers, Slovenia
    JEL: F23 L11 L25 C23
    Date: 2006–09–01
  21. By: Dirk Bergemann; Karl Schlag
    Date: 2007–04–13
  22. By: Donald J Wright (Department of Economics, University of Sydney)
    Abstract: Consumers, when ill, often have the choice of being treated for free in a public hospital or at a positive price in a private hospital. To compensate for the positive price, private hospitals offer a higher quality treatment. Private hospitals and doctors also have a degree of monopoly power in their pricing. In this setting, it is shown that the presence of insurance does not affect the number of consumers treated in the private hospital, rather the private hospital and the doctor respond to the presence of insurance by increasing the prices they charge and the quality of the private hospital experience.
    Keywords: Physician payments
    JEL: I11
  23. By: AMELIO, Andrea; JULLIEN, Bruno
    Date: 2007–03
  24. By: DUBOIS, Pierre; HERNANDEZ-PEREZ, Adriana; IVALDI, Marc
    Date: 2006–09
  25. By: Alexei Karas; William Pyle; Koen Schoors
    Abstract: Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. Estimating the deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction, a finding consistent with depositors interpreting the deposit rate itself as a signal of otherwise unobserved bank-level risk.
    Keywords: banking, market discipline, deposit market, transition, Russia
    JEL: G21 O16 P2
    Date: 2006–06–01

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