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on Industrial Competition |
| By: | Dirk Hackbarth (Department of Finance, Olin School of Business, Washington University in St. Louis); Jianjun Maio (Department of Economics, Boston University and Department of Finance, the Hong Kong University of Science and Technology) |
| Abstract: | This paper develops a continuous time real options model to study the interaction between industry structure and takeover activity. In an asymmetric industry equilibrium, firms have an endogenous incentive to merge when restructuring decisions are motivated by operating and strategic benefits. The model predicts that (i) the likelihood of restructuring activities is greater in more concentrated industries or in industries that are more exposed to exogenous shocks; and (ii) the magnitude of returns arising from restructuring to both merger firms and rival firms are higher in more concentrated industries. While recent real options models contend that competition erodes the option value of waiting and hence accelerates the timing of mergers, in our model, increased competition delays the timing of mergers. |
| Keywords: | industry structure; anticompetitive effect; real options; takeovers. |
| JEL: | G13 G14 G31 G34 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2007-018&r=com |
| By: | D. Dragone; L. Lambertini; A. Mantovani |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:591&r=com |
| By: | Mark Sanders; Jaap Bos; Claire Economidou |
| Abstract: | In this paper, we present a model of the industry life cycle that drives and is driven by R&D. In the model, firms have the option to improve the quality of their output or to invest R&D resources in efficiency gains. Faced with this tradeoff, less mature industries, in which young firms dominate, opt for quality improvements instead of efficiency improvements, whereas more mature industries will do both. This switch is endogenous and depends on the level of quality achieved. We explore these two hypotheses empirically using a panel of manufacturing industries across six European countries over the period 1980-1997. Our empirical results provide support for the model's predictions. |
| Keywords: | Growth, Life Cycle, Innovation, Stochastic Frontier Analysis, Manufacturing Industries |
| JEL: | C23 L23 L60 O32 O47 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0718&r=com |
| By: | E. Bacchiega; L. Lambertini; A. Mantovani |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:583&r=com |
| By: | Patrick Legros Author-X-Name-First: Patrick (ECARES, Université Libre de Bruxelles; and CEPR); Andrew F. Newman (Boston University) |
| Abstract: | We develop a tractable model of the allocation of control in firms in competitive markets, which permits us to study how changes in the scarcity of assets, skills or liquidity in the market translate into control inside the organization. Firms will be more integrated when the terms of trade are more favorable to the short side of the market, when liquidity is unequally distributed among existing firms and following a uniform increase in productivity. The model identifies a price-like mechanism whereby local liquidity or productivity shocks propagate and lead to widespread organizational restructuring. |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2007-003&r=com |
| By: | Astrid Cullmann; Christian von Hirschhausen |
| Abstract: | In this paper we test the hypothesis that the economic transition toward a market economy increases the efficiency of firms. We study 32 Polish electricity distribution companies between 1997-2002, by applying common benchmarking methods to the panel: the nonparametric data envelopment analysis (DEA), the free disposal hull (FDH), and, as a parametric approach, the stochastic frontier analysis (SFA). We then measure and decompose productivity change with Malmquist indices. We find that the technical efficiency of the companies has indeed increased during the transition, while allocative efficiency has deteriorated. We also find significantly increasing returns to scale, suggesting that the regulatory authority should allow companies to merge into larger units. |
| Keywords: | Efficiency analysis, electricity distribution, transition, econometric methods, Poland, DEA, SFA |
| JEL: | P31 L51 L43 C1 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp716&r=com |
| By: | Roberto Roson (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | Traditionally, media like TV and radio, but also the Internet, have been characterized by free access (by consumers having the necessary hardware), with services supported through advertising revenues. Profitability in these markets depends on the capability of attracting audience. Strategic choices, however, also depend on the relationship with the dual market for advertising services. In this paper, a model is introduced, which has two distinguishing features. First, the multidimensional nature of competition in media markets is acknowledged, through explicit modeling of vertical and horizontal differentiation. Second, the price of advertising depends on the expected audience composition, not simply on its magnitude. It also depends on the broadcasters' capability of effectively price-discriminate among advertising customers. It is found that market equilibria depend on a number of critical factors: the amount and type of price discrimination in advertising, the correlation between formats and audience composition, the relative profitability of the different market segments, and diseconomies of scale in program quality. |
| Keywords: | Advertising, Media Industries, Broadcasting, Price Discrimination, Television, Radio, Differentiation.. |
| JEL: | L82 M37 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:07_07&r=com |
| By: | Luis Gutiérrez de Rozas (Comisión Nacional de Energía (CNE)) |
| Abstract: | The aim of this paper is to assess the level of competition prevailing in the Spanish banking system. The current analysis employs a widely used non-structural methodology put forward by Panzar and Rosse (1987) —the so-called H-statistic— and draws upon a comprehensive panel dataset of Spanish commercial and savings banks covering the period 1986-2005. Standard estimates characterize a hump-shaped profile for the H-statistic throughout the time span under consideration. Nevertheless, a weighted procedure is subsequently performed in order to control for firm size and the number of branches. The estimation outcome reveals a gradual rising path for the H-statistic, thus suggesting a more competitive environment among larger banks. In both settings, a noteworthy increase in the degree of competition is identified at the turn of the eighties, when several liberalization-oriented policy measures came into force. The aforementioned findings discredit the widespread hypothesis which states that concentration impairs competition. |
| Keywords: | banking, competition, Panzar-Rosse, market structure |
| JEL: | G21 L13 L10 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0726&r=com |
| By: | Jason Allen; Ying Liu |
| Abstract: | The authors examine the degree of contestability in the Canadian banking system using the <em>H</em>-statistic proposed by Panzar and Rosse (1987) and modified by Bikker, Spierdijk, and Finnie (2006). A modification is necessary because the standard approach of controlling for size using total assets leads to an upward bias in the <em>H</em>-statistic. The authors propose a variety of model specifications and test for contestability using detailed quarterly balance-sheet data from 2000 to 2006. Contrary to Bikker, Spierdijk, and Finnie (2006), the authors find that the Canadian banking sector is in equilibrium and characterized by monopolistic competition. This result is in line with earlier studies of the Canadian banking sector (Nathan and Neave 1989) as well as cross-country studies that use cruder measures of Canadian banking inputs (Claessens and Laeven 2005). As in Bikker, Spierdijk, and Finnie (2006), the authors show that projecting revenue on total assets leads to an upward bias regarding the level of competition. |
| Keywords: | Financial institutions |
| JEL: | E5 E6 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:07-7&r=com |
| By: | Van Horen, Neeltje |
| Abstract: | Statistics show that the sale of goods on credit is widespread among firms even when they are capital constrained and thus face relatively high costs in providing trade credit. This study provides an explanation for this by arguing that customers who possess strong market power are able to increase their customer surplus by demanding to purchase the goods on credit. This gain in customer surplus increases with the degree of asymmetric information between buyer and seller with respect to product quality. Therefore, firms that are perceived as risky are especially subject to the market power of the customer and have to sell their goods on credit. Using detailed firm-level data from a large number of firms in Eastern Europe and Central Asia, this study finds evidence consistent with this hypothesis. It finds a strong positive correlation between customer market power and trade credit provision. Furthermore, this relationship is especially strong when the supplier is more risky and in countries with limited financial sector development or a weak legal system. |
| Keywords: | Economic Theory & Research,Markets and Market Access,Investment and Investment Climate,Financial Intermediation,Access to Markets |
| Date: | 2007–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4284&r=com |
| By: | L. Lambertini |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:598&r=com |
| By: | Alvaro Montenegro García |
| Abstract: | El objetivo de la política de la competencia es garantizar la libertad del mercado y asegurar la libre competencia. Es un tema controversial entre los economistas porque implica la intervención del estado en la operación del mercado y porque, en muchas ocasiones, no es claro si dicha intervención es beneficiosa para el consumidor o la economía. En Colombia, al igual que en otros países, la política de la competencia tiene fuerza legal, lo que la convierte en una variable económica importante, especialmente en el campo de la organización industrial. Este documento familiariza al economista con la política de la competencia y su aplicación. |
| Date: | 2007–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:col:000108:003930&r=com |
| By: | Carbonai, Davide; Di Bartolomeo, Giovanni |
| Abstract: | This paper investigates the market structure of the insurance business by analyzing the (interlock) linkages among companies created by their directors. We focus on the non-life business since this is a sector relatively closed with respect to the competition with other financial activities; an absence of industry competition cannot thus be compensated by other agents. We apply the graph theory to describe the network and the principal component analysis to summarize information and verify the correlation between direct interlocking and companies’ market shares. |
| Keywords: | Non-life insurance; antitrust; competition; interlocking directorates; network economics. |
| JEL: | K23 K21 K0 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4420&r=com |
| By: | Antonio, TESORIERE |
| Abstract: | This paper examines a three-stage model of divisionalization wher, first, two parents firms create independent unts, second, the parents firms allocate cost reducing levels over these units, and third, the resulting uits compete in a Cournot mrket given their current costs of production. The introduction of the cost reduction phase is shown to reduce the incentives toward divisionalization severely, relative to other existing models. Namely, the scope for divisionalization in equilibrium reduces as the marginal cost of the cost reducing investment decreases, and eventually vanishes. A second-best welfare analysis shows that, for any given market structure, the equilibrium investment decisions of the parent firms are socially optimal. In addition, the no divisionalization outcome is sustainable in equilibrium only if it is socially optimal. |
| Keywords: | Divisionalization; Horizontal Mergers; Research Joint Mergers |
| JEL: | L11 L13 L22 |
| Date: | 2007–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2007021&r=com |
| By: | Siddiqi, Hammad |
| Abstract: | We model stock price manipulation when the manipulator is in the role of an intermediary (broker). We find that in the absence of superior information, the broker can manipulate equilibrium outcomes without losing its credibility with respect to accurate forecasting. The result extends to the case when the broker prefers more investment to come into the market. However, when moderate competition among brokers is introduced then the investors get their favorite outcome. When competition exceeds a certain threshold, neither the brokers nor the investors get their respective favorite outcomes. In any case, if the broker bias for more investment dominates competition, the brokers get their favorite outcome at the expense of investors. |
| Keywords: | Stock Price Manipulation; Broker Manipulation; Broker Competition; Broker Bias; Emerging Markets |
| JEL: | G20 G10 C72 D82 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4388&r=com |