nep-com New Economics Papers
on Industrial Competition
Issue of 2007‒10‒13
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Vertical integration and product innovation By Arijit Mukherjee2; Piercarlo Zanchettin
  2. Reference Points and the Theory of the Firm By Oliver D. Hart
  3. A note on competitive toughness:;why it should be identified neither with product;substitutability, nor (inversely) with concentration.;Toward a unified theory of oligopoly. By Davide DOTTORI; Saul DESIDERIO
  4. A Search Theory of Rigid Prices By Guido Menzio
  5. The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions By De Silva, Dakshina; Kosmopoulou, Georgia; Lamarche, Carlos
  6. Imperfect competition, technical progress and capital accumulation By Biancamaria D'Onofrio; Bertrand Wigniolle
  7. Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates By Claeys, Sophie; Hainz, Christa
  8. Mergers & Acquisitions and Innovation Performance in the Telecommunications Equipment Industry By Tseveen Gantumur; Andreas Stephan
  9. Spectrum Allocation for 3G in Philippines: Implications for Policy Makers and Regulators By Jain Rekha
  10. Shifting logics of legitimation in the diffusion of complex innovations By Stéphane Guérard; Ann Langley
  11. R&D, Competition and Growth with Human Capital Accumulation : A Comment By Bianco, Dominique

  1. By: Arijit Mukherjee2; Piercarlo Zanchettin
    Abstract: We study vertical integration and product innovation (in the form of horizontal product differentiation) as interdependent strategic choices of vertically related firms. We consider product innovation in the downstream market as a strategic decision of innovative firms facing a threat of vertical integration and market foreclosure by an upstream monopolist. Our main finding is that, although product differentiation allows to soften product market competition and to avoid market foreclosure, the downstream market may prefer less product differentiation to deter vertical integration. Therefore, less product innovation can be a possible social cost of a lenient antitrust policy.
    Keywords: Vertical Integration; product innovation; market foreclosure; duopoly
    JEL: D43 L13
    Date: 2007–10
  2. By: Oliver D. Hart
    Abstract: In this article I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a transaction should be placed inside a firm (in-house production) or in the market place (outsourcing).
    JEL: D23 D86 K12
    Date: 2007–10
  3. By: Davide DOTTORI (Universita' Politecnica delle Marche, Dipartimento di Economia); Saul DESIDERIO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: Often the intensity of competition has been measured through proxies like the degree of product substitutability or as the inverse;of the degree of concentration in an industry. Both visions are based on the implicit assumption that few competitors imply a less though competition, but puzzles arise as several counter-examples exist. Other puzzling issues arise from the lack of a unified approach to oligopolistic equilibria (e.g. Cournot vs Bertrand competition). In this paper the unified approach of competitive toughness proposed by D'Aspremont et al.(2007), offering a generalization of the traditional oligopoly theory encompassing all the possible oligopolistic regimes between the Cournot and the competitive outcome, is discussed, also with respect to its implication for economic growth and macro studies.
    Date: 2007–10
  4. By: Guido Menzio (Department of Economics, University of Pennsylvania)
    Abstract: In this paper, I build a model marketplace populated by a finite number of sellers – each producing its own variety of the good – and a continuum of buyers–each searching for a variety he likes. Using the model, I study the response of a seller’s price to privately observed fluctuations in its idiosyncratic production cost. I find that the qualitative properties of this response critically depend on the persistence of the production cost. In particular, if the cost is i.i.d., the seller’s price does not respond at all. If the cost is somewhat persistent, the seller’s price responds slowly and incompletely. If the cost is very persistent, the seller’s price adjusts instantaneously and efficiently to all fluctuations in productivity. I argue that these findings can explain why the monthly frequency of a price change is so much lower for processed than for raw goods.
    Keywords: Search Frictions, Asymmetric Information, Rigid Prices, Sticky Prices
    JEL: L11 D83
    Date: 2007–03–01
  5. By: De Silva, Dakshina; Kosmopoulou, Georgia; Lamarche, Carlos
    Abstract: In government procurement auctions of construction contracts, entrants are typically less informed and bid more aggressively than incumbent firms. This bidding behavior makes them more susceptible to losses a¤ecting their prospect of survival. In April of 2000, the Oklahoma Department of Transportation started releasing the internal cost estimates to complete highway construction projects. Using newly developed quantile regression approaches, this paper examines the impact of the policy change on aggressive entrants. First, we find that the information release eliminates the bidding differential between entrants and incumbents attributed to informational asymmetries. Second, we argue that the policy change a¤ects the prospects of survival of entrants in the market. We find that those who used to exit the market relatively soon are now staying 37 percent longer, while at the median level bidding duration increased by roughly 68 percent. The policy has the potential to encourage entry in government procurement auctions and thus increase competition.
    Keywords: Entry; Survival; Information Release; Procurement Auctions
    JEL: D44 H57
    Date: 2007–06–08
  6. By: Biancamaria D'Onofrio (Dipartimento di Matematica - [Università degli studi di Roma I - La Sapienza]); Bertrand Wigniolle (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper explores the consequences of imperfect competition on capital accumulation. The framework is an OLG growth model with altruistic agents. Two types of long run equilibria exist : egoistic or altruistic. We assume both competitive and non-competitive firms exist, the latter being endowed with more productive technology. They behave strategically on the labor market : they take into account the impact of their demand for labor on the equilibrium wage and on their profit. The effect of technical progress for a non-competitive firm depends on the initial productivity of the firm and on the type of steady state (egoistic or altruistic). An increase in the productivity of the most productive firm has a negative impact on capital accumulation in an egoistic steady state, and a positive one in an altruistic steady state. An increase in the productivity of the competitive sector can have various effects on capital accumulation. If the productivity levels of the non-competitive firms are close enough, capital accumulation increases in an egoistic steady state and decreases in an altruistic one. But, the impact of increasing productivity in the competitive sector can be reversed if the productivity of the less productive non-competitive firm is low enough.
    Keywords: Imperfect competition, capital accumulation, technical progress.
    Date: 2006–12
  7. By: Claeys, Sophie (Research Department, Central Bank of Sweden); Hainz, Christa (Department of Economics, University of Munich)
    Abstract: Policy makers often decide to liberalize foreign bank entry but put limitations on the mode of entry. We study how different entry modes affect the lending rate set by foreign and domestic banks. Our model captures two essential features of banking competition in emerging markets: Domestic banks possess private information about their incumbent clients and foreign banks have better screening skills. Our model predicts that competition is stronger if foreign entry occurs through a greenfield investment and domestic banks' interest rates are thus lower. We find empirical support for this differential competition effect for a sample of banks from ten Eastern European countries for the period 1995-2003.
    Keywords: Banking; Foreign Entry; Mode of Entry; Interest Rate; Asymmetric Information
    JEL: D40 G21 L31
    Date: 2007–06–01
  8. By: Tseveen Gantumur; Andreas Stephan
    Abstract: The telecommunications in the 1990s witnessed an enormous worldwide round of Mergers & Acquisitions (M&A). This paper examines the innovation determinants of M&A activity and the consequences of M&A transactions on the technological potential and the innovation performance. We examine the telecommunications equipment industry over the period 1988-2002 using a newly constructed data set with firm-level data describing M&A and innovation activity as well as financial characteristics. Based on a matching propensity score procedure, the study provides evidence that M&A realize significantly positive changes to the firm's post-merger innovation performance.
    Keywords: Mergers & Acquisitions, Innovation Performance, Telecommunications Equipment Industry
    JEL: L63 O30 L10
    Date: 2007
  9. By: Jain Rekha
    Abstract: The commercial potential of wireless applications has brought spectrum policies to the forefront of regulatory arena. The visibility of the telecom sector and the prior experience of 3G licensing in Europe and UK have made several Asian regulators and policy makers wary of using auctions. This paper details out the beauty contest approach adopted by NTC to allocate 3G licenses and the issues that arose as a consequence and highlights the influence of global developments (European and UK 3G auctions) on domestic spectrum allocation processes. The adoption of the beauty contest approach and fixed license fee was justified by NTC on the grounds of ensuring lower prices to consumers but it led to criticism that it was a clear violation of law, as NTC was mandated to promote competition. In this context, auctions would have been a better and more economically efficient process. The case study highlights the importance of incorporating economic principles, design of a transparent evaluation criteria and communication of the same to the bidders prior to the event. Policy makers need to recognize that well designed auctions are transparent mechanism to allocate scarce resource to those entities who value it most. While beauty contests may appear to be simple mechanisms to administer, lack of clarity in design could lead to non transparency and subsequent possibility of litigation and delays. The study also brings out that although an open consultative approach in the early stages may appear to delay the process, in the long run, it leads to more transparent and robust solutions.
    Date: 2007–10–01
  10. By: Stéphane Guérard; Ann Langley
    Abstract: Legitimation and competition are two major forces moulding organizational field and the diffusion of innovations. While discursive legitimation provides "rational justifications" for innovations, competition may incite organizations to acquire effective innovations preemptively. This paper draws on a case study of the legitimation and diffusion of a sophisticated medical technology to suggest that, in highly regulated environments, these two forces may interact, and that opposing legitimation strategies may be associated with competition. We argue that while convergent discursive legitimation strategies tend to speed up the diffusion process, divergent discursive legitimation strategies may have the opposite effect. The case suggests that the dominant logics of legitimation may shift, oscillating between convergence and divergence as an innovation diffuses. We also show how the resulting delays in diffusion may be pre-empted by a phenomenon we call institutional delinquency, that is when the moral and cognitive-cultural legitimacies of the technology among professionals and managers becomes sufficient to counteract regulatory forces.
    Keywords: technology, legitimation, institution, innovation, PET scanner, theorization, competition
    JEL: I12 D81 O32
    Date: 2007–09
  11. By: Bianco, Dominique
    Abstract: This paper shows that the results of Bucci (2003) depend criti- cally on the assumption that there are no difference between the intermediate goods share in final output, the returns of specialization and the degree of market power of monopolistic competitors. In this paper, we disentangle the market power parameter from the intermediate goods share in final output and the returns to specialization. The main result of this paper is that the competition has no effect on growth contrary to Bucci (2003). This result is explained by the fact that economic growth rate depends on the parameters describing preference and the human capital accumulation technology but is completely independent of competition and R&D activity.
    Keywords: Endogenous growth; Horizontal di®erentiation; Technologi- cal change; Imperfect competition
    JEL: D43 O41 J26 O31 L16
    Date: 2007–10–09

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