nep-com New Economics Papers
on Industrial Competition
Issue of 2007‒06‒23
sixteen papers chosen by
Russell Pittman
US Department of Justice

  1. The Evolving Food Chain: Competitive Effects of Wal-Marts Entry into the Supermarket Industry By Emek Basker; Michael Noel
  2. Competition in European Telecom Markets By BISMUT, Sophie
  3. Privatization, Entry Regulation and the Decline of Labour's Share of GDP: A Cross-Country Analysis of the Network Industries By Azmat, Ghazala; Manning, Alan; Van Reenen, John
  4. Markets Susceptible to ex ante Regulation : Methodology and Commission Recommendation By STUMPF, Ulrich
  5. Strategic Patenting and Software Innovation By Michael Noel; Mark Schankerman
  6. Demand and Innovation in Services: the Case of Mobile Communications. By Nicoletta Corrocher; Lorenzo Zirulia
  7. Bank Efficiency and Market Structure: What Determines Banking Spreads in Armenia? By Holger Floerkemeier; Era Dabla-Norris
  8. Effectiveness of Competition Law: A Panel Data Analysis By Franz Kronthaler
  9. Competing in Organizations: Firm Heterogeneity and International Trade By Marin, Dalia; Verdier, Thierry
  10. e-Communications: Investment and the Regulatory Framework By JONES, Siôn; SALSAS, Pau
  11. Does a Seller Really Want Another Bidder? By Ronald M. Harstad
  12. Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms By Del Gatto, Massimo; Ottaviano, Gianmarco I P; Pagnini, Marcello
  13. How to sell to buyers with crossholdings By Gino Loyola
  14. Entry and the accumulation of capital: a two state-variable extension to the Ramsey model By Brito, Paulo; Dixon, Huw
  15. The Road to More Flexibility in Spectrum Usage and Access: Are We There Yet? By POGOREL, Gérard
  16. Are Standards Always Protectionist? By Marette, Stéphan; Beghin, John C.

  1. By: Emek Basker (Department of Economics, University of Missouri-Columbia); Michael Noel
    Abstract: We analyze the effect of Wal-Marts entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Marts entry on competitors prices of 24 grocery items across several categories. Wal-Marts price advantage over competitors for these products averages approximately 10%. On average, competitors response to Wal-Marts entry is a price reduction of 11.2%, mostly due to smaller-scale competitors: the response of the big three supermarket chains (Albertsons, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Marts effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.
    Keywords: Wal-Mart, Retail Prices, Supermarkets, Price Competition
    JEL: L11 L13 L81
    Date: 2007–06–15
  2. By: BISMUT, Sophie
    Abstract: In recent years, the European telecommunications market has witnessed major developments, with rapid expansion in access to telecommunications networks and a surge in the number of available services and applications. While many factors have contributed to the transformation of the telecommunications industry, competition has played a key role in driving telecom players to invest in new technologies, to innovate and to offer new services. Increased competitive pressure is being felt across all market segments, even though significant differences remain across services and countries. Broadband roll-out has allowed operators to offer multiple-play services, thereby transforming traditional segment boundaries and competitive market structures.
    Keywords: competition; access; convergence; multiple-play; fixed telephony; mobile services; broadband; VoIP; MVNO.
    JEL: L51 L40 L50 L41 K23 L96 L33 L94
    Date: 2006–12
  3. By: Azmat, Ghazala; Manning, Alan; Van Reenen, John
    Abstract: Labour's share of GDP in most OECD countries has declined over the last two decades. Some authors have suggested that these changes are linked to deregulation of product and labour markets. To examine this we focus on a large quasi-experiment in the OECD: the privatization of many network industries (e.g. telecommunications and utilities). We present a model with agency problems, imperfect product market competition and worker bargaining which makes clear predictions on how the labour share, employment and wages respond to privatization and other regulatory changes. We exploit cross-country panel data on several network industries and find that privatization can account for a significant proportion of the fall of labour's share (a fifth overall, but over half in Britain and France). The impact of privatization has been offset by falling barriers to entry, which consistent with theory, dampens profit margins.
    Keywords: Entry Regulation; Labour share; Privatization; Wages
    JEL: E22 E24 E25 J30 L32 L33
    Date: 2007–06
  4. By: STUMPF, Ulrich
    Abstract: The EU regulatory framework for electronic communications services distinguishes between markets that are susceptible to ex ante regulation and those that are subject to competition law alone. The paper lays out the methodology for identifying relevant markets that may be considered for ex ante regulation. It also provides a summary of the relevant markets that should be susceptible to ex ante regulation based on an analysis of conditions likely to prevail in a ‘representative" member state. The paper finally addresses the role of the European Commission, and in particular its Relevant Markets Recommendation, as a means of providing guidance to NRAs.
    Keywords: EU regulatory framework; susceptibility to ex ante regulation; 3-criteria test; Relevant Markets Recommendation; market definition and modified Greenfield approach.
    JEL: K29 L51 L50 D82 K21 K23 L96
    Date: 2006–12
  5. By: Michael Noel; Mark Schankerman
    Abstract: Strategic patenting is widely believed to raise the costs of innovating,especially in industries characterised by cumulative innovation. This paperstudies the effects of strategic patenting on R&D, patenting and marketvalue in the computer software industry. We focus on two key aspects:patent portfolio size which affects bargaining power in patent disputes, andthe fragmentation of patent rights (.patent thickets.) which increases thetransaction costs of enforcement. We develop a model that incorporates botheffects, together with R&D spillovers. Using panel data for the period 1980-99, we find evidence that both strategic patenting and R&D spilloversstrongly affect innovation and market value of software firms.
    Keywords: patents, anti-commons, patent thickets, R&D spillovers, marketvalue
    JEL: L43 L86 O31 O32 O33 O34 O38
    Date: 2006–06
  6. By: Nicoletta Corrocher (CESPRI - Bocconi University, Milan, Italy and NFH - University of Tromso, Tromso, Norway.); Lorenzo Zirulia (CESPRI - Bocconi University, Milan and University of Bologna, Bologna, Italy.)
    Abstract: This paper aims at analyzing the characteristics and the determinants of innovation in the mobile communication service industry, by emphasising in particular the role of demand. In a Shumpeterian spirit, we argue that competition in this sector crucially depends upon innovation, and that, given the specific characteristics of the industry, firms' innovative strategies are strongly affected by demand. Our main point is that in a context of uncertainty, demand affects firms' innovative strategies in two ways: first, by providing information on users' behaviour and by increasing the capability of market segmentation; second, by providing invcentives to innovate. This argument is supported by an empirical analysis carried out on the basis of an original dataset including all the tariff plans offered in the history of the Italian market up to 2005. We find that both firms' installed base of customers and market saturation play a role in shaping firms' innovative activities, in terms of number and type of innovations.
    Keywords: Service Innovation, Demand Characteristics, Mobile Communications.
    JEL: O31 L96 D43
    Date: 2007–03
  7. By: Holger Floerkemeier; Era Dabla-Norris
    Abstract: Despite far-reaching banking sector reforms and a prolonged period of macroeconomic stability and strong economic growth, financial intermediation in Armenia has lagged behind other transition countries, and interest rate spreads have remained higher than in most Central and Eastern European transition countries. This paper examines the determinants of interest rate spreads and margins in Armenia using a bank-level panel dataset for the period 2002 to 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as well as the market structure within which banks operate, explain a large proportion of crossbank, cross-time variation in spreads and margins. The results suggest that there is a large potential to increase cost efficiency and competition in the banking system.
    Keywords: Working Paper , Banking systems , Armenia , Interest rates ,
    Date: 2007–06–12
  8. By: Franz Kronthaler
    Abstract: The paper explores what macroeconomic factors can tell us about the effectiveness of recently enacted national competition laws. Qualitative evidence suggests that numerous countries fall short in implementing competition law. Furthermore, there seems to be significant differences between countries. To examine what factors might contribute to the explanation of effectiveness of competition law panel regression analysis is used. The results indicate that the level of economic development matters, however the institutional learning curve is also relevant. Furthermore, larger countries should be more concerned with competition advocacy activities than smaller countries and it seems to be the case that the problem of capture of competition law is serious in countries with high levels of corruption.
    Keywords: Competition law enforcement, developing and transition countries
    JEL: K21 L40
    Date: 2007–06
  9. By: Marin, Dalia; Verdier, Thierry
    Abstract: This paper develops a theory which investigates how firms' choice of corporate organization is affecting firm performance and the nature of competition in international markets. We develop a model in which firms' organisational choices determine heterogeneity across firms in size and productivity in the same industry. We then incorporate these organisational choices in a Krugman cum Melitz and Ottaviano model of international trade. We show that the toughness of competition in a market depends on who - headquarters or middle managers - have power in firms. Furthermore, we propose two new margins of trade adjustments: the monitoring margin and the organizational margin. International trade may or may not lead to an increase in aggregate productivity of an industry depending on which of these margins dominate. Trade may trigger firms to opt for organizations which encourage the creation of new ideas and which are less well adapt to price and cost competition.
    Keywords: firm heterogeneity; international trade with endogenous firm organizations; productivity; theory of the firm; trade adjustment
    JEL: D23 F12 F14 L22
    Date: 2007–06
  10. By: JONES, Siôn; SALSAS, Pau
    Abstract: The EU regulatory framework for e-communications was adopted by the European Parliament and the Council in 2002, and became applicable from 2003. It has three primary objectives: (1) to promote competition; (2) to develop the single market; and (3) to promote citizens' rights. The European Commission's DG Information Society commissioned London Economics to estimate the level of e-communications investment in the EU and to examine its main drivers as part of a contributio to the Commission's 2006 review of the e-communications framework. This paper outlines some of the findings of that study. The paper provides a description of the process of collecting data on investment in physical infrastructure in the e-communciations sector by country and by sub-sector. It also presents the collected data, showing a decline in overall investment between 2001 and 2003 and a subsequent upturn in 2004. An econometric analysis of the drivers of investment over the period is undertaken, which suggests that better performing regulatory regimes, as measured by an OECD regulatory index, can contribute to higher levels of investment in the sector.
    Keywords: e-communications; investment; regulation
    JEL: L97 L50 D82 K29 L51 D74 K23 L96 L90 L43
    Date: 2006–12
  11. By: Ronald M. Harstad (Department of Economics, University of Missouri-Columbia)
    Abstract: Jeremy I. Bulow and Paul D. Klemperer (AER, 1996) argue that the usual concerns of auction design miss the big picture, and show that a simple English auction without a reserve price and N + 1 bidders attains expected revenue in excess of any auction with N bidders. The issue of how this additional bidder might be attracted is not treated in their model. In fact, that an auction can convince another bidder it is worth his while to compete carries a critical message about expected revenue. In those many markets where potential bidders decide whether to compete in an auction based on the expected probability of bidding, Bulow and Klemperer's conclusion is shown here to be overturned. I explore the symmetric equilibrium of a model where potential bidders first decide whether to participate in an auction, and then participants select bidding strategies. Expected revenue is increased by some degree of bidder discouragement, in that it is never optimal to have all N potential bidders participate with probability one, even for very small N
    Keywords: affiliated-values auctions, auction revenue, number of bidders, increased competition, endegenous bidder participation
    JEL: D44 D82 C72
    Date: 2007–05–15
  12. By: Del Gatto, Massimo; Ottaviano, Gianmarco I P; Pagnini, Marcello
    Abstract: We use Italian firm-level data to investigate the impact of trade openness on the distribution of firms across marginal cost levels. In so doing, we implement a procedure that allows us to control not only for the standard transmission bias identified in firm-level TFP regressions but also for the omitted price bias due to imperfect competition. We find that more open industries are characterized by a smaller dispersion of costs across active firms. Moreover, in those industries the average cost is also smaller.
    Keywords: Cost dispersion; firm selection; firm-level data; openness to trade; total factor productivity
    JEL: F12 F15 R13
    Date: 2007–06
  13. By: Gino Loyola
    Abstract: This paper characterizes the optimal selling mechanism in the presence of horizontal crossholdings. We find that this mechanism imposes a discrimination policy against the stronger bidders so that the seller´s expected revenue is increasing in both the common crossholding and the degree of asymmetry in crossholdings. Furthermore, it can be implemented by a sequential procedure that includes a price-preferences scheme and the possibility of an exclusive deal with the weakest bidder. We also show that a simple sequential negotiation mechanism, although suboptimal, yields a larger seller´s expected revenue than both the first-price and the second-price auctions.
    Date: 2007–05
  14. By: Brito, Paulo; Dixon, Huw (Cardiff Business School)
    Abstract: In this paper we consider the entry and exit of firms in a dynamic general equilibrium model with capital and a fixed labour supply. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. Entry is determined by a free entry condition such that the costs of entry are equal to the present value of incumbent firms. As short run profits are a decreasing function of the number of firms, we add a new stability mechanism in addition to the diminishing returns to capital. Then equilibrium is saddle-point stable and the stable manifold is two-dimensional. Transitional dynamics can, under certain circumstances, be non-monotonic. We study the effects of productivity and fixed cost shocks on the aggregate activity, the number and the size of firms.
    Keywords: Entry; dynamics; Ramsey
    JEL: D92 C62 E32 O41
    Date: 2007–06
  15. By: POGOREL, Gérard
    Abstract: In the spectrum sections of its "Proposed Changes" to the Review of the European Union Regulatory Framework for Electronic Communications Networks and Services, the European Commission establishes a coherent, comprehensive and original set of forward-looking spectrum policy principles. By emphasising the role of trading and market flexibility, technology and service neutrality, it departs from traditional,administrative spectrum management principles. But by stressing the need for a clear justification of exclusive usage rights, it differentiates itself from market-fits all propositions. Three issues should be examined to understand what kind of evolutions could occur: the prevention of interferences, harmonisation and standardisation, and lastly the weight of institutions. Technical progress in wireless, culminating in extended dynamic access, will mostly complement market mechanisms in fostering the efficient use of spectrum, as long as institutional factors do not interfere (barriers to entry) or are removed.
    Keywords: Spectrum usage; Spectrum management; Spectrum policy; radio interferences; audiovisual policy.
    JEL: L51 D82 K23 L96
    Date: 2006–12
  16. By: Marette, Stéphan; Beghin, John C.
    Abstract: We analyze the effects of a domestic standard that reduces an externality associated with the consumption of the good targeted by the standard, using a model in which foreign and domestic producers compete in the domestic good market. Producers can reduce expected damage associated with the externality by incurring a cost that varies by source of origin. Despite potential protectionism, the standard is useful in correcting the consumption externality in the domestic country. Protectionism occurs when the welfare-maximizing domestic standard is higher than the international standard maximizing welfare inclusive of foreign profits. The standard is actually anti-protectionist when foreign producers are much more efficient at addressing the externality than are domestic producers. Possible exclusion of domestic or foreign producers arises with large standards, which may alter the classification of a standard as protectionist or non-protectionist. The paper provides important implications for the estimation and use of tariff equivalents of nontariff barriers.
    Keywords: externality, nontariff barriers, protectionism, safety, standard, tariff equivalent.
    Date: 2007–06–14

This nep-com issue is ©2007 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.