nep-com New Economics Papers
on Industrial Competition
Issue of 2007‒05‒04
four papers chosen by
Russell Pittman
US Department of Justice

  1. Strategic Advertisement with Externalities: A New Dynamic Approach By R. Joosten
  2. Wholesale Price Discrimination and Parallel Imports By Ganslandt, Mattias; Maskus, Keith E.
  3. Bank Risk-Taking and Competition Revisited: New Theory and New Evidence By Gianni De Nicoló; John H. Boyd; Abu M. Jalal
  4. Banking Sector Integration and Competition in CEMAC By Samer Y. Saab; Jerome Vacher

  1. By: R. Joosten
    Abstract: We model and analyze strategic interaction over time in a duopolis-tic market. Each period the firms independently and simultaneously choose whether to advertise or not. Advertising increases the own immediate sales, but may also cause an externality, e.g., increase or decrease the immediate sales of the other firm ceteris paribus. There exists also an effect of past advertisement efforts on current sales. The 'market potential' of each firm is determined by its own but also by its opponent's past efforts. A higher effort of either firm leads to an increase of the market potential, however the impact of the own past efforts is always stronger than the impact of the opponent's past efforts. How much of the market potential materializes as immediate sales, then depends on the current advertisement decisions. We determine feasible rewards and (subgame perfect) equilibria for the limiting average reward criterion using methods inspired by the repeated-games literature. Uniqueness of equilibrium is by no means guaranteed, but Pareto efficiency may serve very well as a refinement criterion for wide ranges of the advertisement costs.
    Keywords: advertising, externalities, average rewards, equilibria Length 21 pages
    JEL: C72 C73 L13 M31 M37
    Date: 2007–04
  2. By: Ganslandt, Mattias (University of Colorado); Maskus, Keith E. (University of Colorado)
    Abstract: We develop a model of vertical pricing in which an original manufacturer sets wholesale prices in two markets integrated at the distributor level by parallel imports (PI). In this context we show that if competition policy requires uniform wholesale prices across locations it would push retail prices toward convergence as transportation costs fall. However, these retail prices could be higher than those induced without restrictions on prices charged to distributors. Thus, the competition policy may not be optimal for consumer welfare.
    Keywords: Vertical Restraints; Parallel Imports; Market Integration; Price Discrimination; Competition Policy
    JEL: F15 K21 L14
    Date: 2007–04–13
  3. By: Gianni De Nicoló; John H. Boyd; Abu M. Jalal
    Abstract: This paper studies two new models in which banks face a non-trivial asset allocation decision. The first model (CVH) predicts a negative relationship between banks' risk of failure and concentration, indicating a trade-off between competition and stability. The second model (BDN) predicts a positive relationship, suggesting no such trade-off exists. Both models can predict a negative relationship between concentration and bank loan-to-asset ratios, and a nonmonotonic relationship between bank concentration and profitability. We explore these predictions empirically using a cross-sectional sample of about 2,500 U.S. banks in 2003 and a panel data set of about 2,600 banks in 134 nonindustrialized countries for 1993-2004. In both these samples, we find that banks' probability of failure is positively and significantly related to concentration, loan-to-asset ratios are negatively and significantly related to concentration, and bank profits are positively and significantly related to concentration. Thus, the risk predictions of the CVH model are rejected, those of the BDN model are not, there is no trade-off between bank competition and stability, and bank competition fosters the willingness of banks to lend.
    Keywords: Bank competition , concentration , risk , asset allocations , Bank soundness , Competition , Profits , Asset management , Resource allocation , Risk management , Economic models ,
    Date: 2007–01–08
  4. By: Samer Y. Saab; Jerome Vacher
    Abstract: This paper considers the extent of retail banking integration in the Communauté Economique et Monétaire d'Afrique Centrale (CEMAC) and the level of bank competition at the regional level. Using a mix of quantitative and qualitative indicators, the paper finds some evidence of price convergence in average interest rate spreads. However, this observed fact is not supported by an increase in cross-border flows in retail loans and deposits, and price convergence may merely reflect excess liquidity in the region. Other data also indicate that bank competition within the CEMAC as a region is limited, complementing the findings on integration. Addressing shortfalls in legal and regulatory frameworks, infrastructure, and markets would facilitate integration.
    Keywords: CEMAC , monetary union , banking sector integration , bank ccompetition ,
    Date: 2007–01–11

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