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on Industrial Competition |
| By: | Liliane Karlinger; Massimo Motta |
| 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 lower equilibrium prices are also those under which the incumbent is more likely to exclude the rival. |
| JEL: | L11 L14 L42 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2007/30&r=com |
| By: | Ghosal, Vivek |
| Abstract: | This paper focuses on the genesis, taxonomy and timeline of U.S. criminal antitrust investigations, and uses time-series data on enforcement to examine the interrelationships between the various criminal enforcement variables as well as the linkages between criminal and civil enforcement. The key findings are: (1) there appears to be considerable dynamic interplay between the criminal variables. For example, an increase in grand jury investigations or criminal cases initiated or the number of individuals or firms convicted generates increases in most of these (endogenous) variables in future periods. A broad conclusion that can be drawn is that information unearthed during a given criminal investigation and prosecution often reveals information about other conspiracies leading to future investigations and prosecutions; (2) an increase in civil enforcement leads to future increases in the criminal cases and firms and individuals convicted. This suggests that information gleaned during civil investigations, such as mergers or monopolization cases, may reveal information about collusive behavior in markets leading to criminal investigations and prosecutions; and (3) criminal enforcement follows a counter-cyclical pattern with the number of criminal cases prosecuted increasing following an economic downturn. We relate this to the literature which points to cartel instability during economic downturns. Overall, our results point to complementarities in the investigative process within different facets of criminal investigations as well as between criminal and civil investigations. |
| Keywords: | Cartels; Antitrust Enforcement; Prosecution; Business Cycles |
| JEL: | L00 L40 B00 K21 M20 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5499&r=com |
| By: | Ghosal, Vivek |
| Abstract: | This paper empirically models the longer-run deep-seated shift in intellectual thinking that followed the Chicago School’s criticism of the older antitrust doctrine, the shorter-run driving forces related to switches of the political party in power, merger waves, changes in economic activity and the level of funding and quantifies their impact on enforcement by the Antitrust Division of the U.S. Department of Justice over the period 1958-2002. The key findings are: (1) a distinct regime-shift in antitrust enforcement during the 1970s and, post-regime-shift, there has been a marked compositional change with a quantitatively large increase (decrease) in criminal (civil) antitrust court cases initiated; (2) post-regime-shift, there appears to be a change in the role played by politics with Republicans initiating more (less) criminal (civil) court cases than Democrats and the estimated quantitative effects are large; (3) disaggregating the total number of court cases into the main categories under which they are initiated (price-fixing, mergers, monopolization and restraints-of-trade) shows that individual types of cases have widely differing responses to changes in the driving forces; and (4) in a horse-race between the regime-shift and political effect on one side and the remaining variables on the other, the former forces win hands-down in explaining broad shifts in enforcement. Modeling the longer-run shift and disaggregating the court cases emerge as crucial to gaining insights into the intertemporal shifts in enforcement. The paper elaborates on the causes for the shift in enforcement and on the effectiveness of antitrust. |
| Keywords: | Antitrust enforcement; regime-shift; politics; supreme court; effectiveness. |
| JEL: | L40 B00 K00 M20 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5460&r=com |
| By: | Axel Dreher (KOF Swiss Economic Institute, ETH Zurich Switzerland and CESifo, Germany); Martin Gassebner (Department of Management, Technology, and Economics, ETH Zurich) |
| Abstract: | The paper investigates whether the impact of regulations on entrepreneurship depends on corruption. We first test whether regulations robustly deter firm entry into the markets. Our results show that some regulations are indeed important determinants of entrepreneurial activity. Specifically, more procedures required to start a business and larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis for a maximum of 43 countries over the period 2003-2005 shows that corruption is beneficial in highly regulated economies. At the maximum level of regulation among our sample of countries, corruption significantly increases entrepreneurial activity. Our results thus provide support for the ‘grease the wheels’ hypothesis. |
| Keywords: | corruption, start-ups, grease the wheels, entrepreneurship, regulation, doing business |
| JEL: | D73 F59 M13 L26 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-166&r=com |
| By: | Rosen Marinov (IUHEI, The Graduate Institute of International Studies, Geneva) |
| Abstract: | This paper investigates the effect of merger-driven market concentration on the mark-ups of non-merging rival firms in Europe's paper manufacturing industry. Using a representative data set of 400 independently-owned companies spanning a ten-year period, we aim to disentangle the impact of full-scale mergers and acquisitions from that due to other concentration-increasing developments. We find a positive and statistically significant relationship between price-cost margins and overall industry consolidation, as captured by the Herfindahl-Hirschman and four-firm indexes. However, takeover-related market share amalgamation has a negative impact, albeit of more modest proportions. The latter result seems to be driven by vertical transactions, suggesting that input-side channels, much as product price competition, may explain non-merging firms' mark-up response. |
| Keywords: | Mergers and acquisitions; Concentration; Mark-up; Competition policy |
| Date: | 2007–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heiwp21-2007&r=com |
| By: | Davide Carbonai; Giovanni Di Bartolomeo |
| 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 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0001&r=com |
| By: | Abbasoğlu, Osman Furkan; Aysan, Ahmet Faruk; Gunes, Ali |
| Abstract: | After 2001 crisis, the macroeconomic environment led to important changes in Turkish banking sector which has experienced a process of concentration by involving in merger and acquisition activities and liquidation of some insolvent banks. Using the data from the detailed balance sheets of the banks that operated in the years from 2001 to 2005, we examine the degree of concentration and degree of competition in the market by applying Panzar and Rosse’s approach. We also explore the existence of relationship between efficiency and profitability of the banks taking into account the internationalization of banking. Our results do not suggest the existence of relationship between concentration and competition. There is also no robust relationship between efficiency and profitability. |
| Keywords: | Concentration; Competition; Efficiency; Profitability of the Turkish Banking Sector |
| JEL: | G15 G20 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5494&r=com |
| By: | HOSONO Kaoru; SAKAI Koji; TSURU Kotaro |
| Abstract: | We investigate the motives and consequences of the consolidation of banks in Japan during the period of fiscal year 1990-2004 using a comprehensive dataset. Our analysis suggests that the government's too-big-to-fail policy played an important role in the mergers and acquisitions (M&As), though its attempt does not seem to have been successful. The efficiency-improving motive also seems to have driven the M&As conducted by major banks and regional banks in the post-crisis period, while the market-power motive seems to have driven the M&As conducted by regional banks and corporative (shinkin) banks. We obtain no evidence that supports managerial motives for empire building. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:07059&r=com |
| By: | Martin Cihák; Klaus Schaeck |
| Abstract: | We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment. |
| Keywords: | Working Paper , Banks , Capital , Competition , Bank supervision , Industrial structure , |
| Date: | 2007–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/216&r=com |
| By: | Doh-Shin Jeon; Sjaak Hurkens |
| Abstract: | We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic e±ciency can be achieved at the same time. |
| Keywords: | Networks, Access Pricing, Interconnection, Competition Policy, Telecommunications, Investment |
| JEL: | D4 K21 L41 L51 L96 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1055&r=com |
| By: | Argia M. Sbordone |
| Abstract: | This paper analyzes the potential effect of global market competition on inflation dynamics. It does so through the lens of the Calvo model of staggered price-setting, which implies that inflation depends on expected future inflation and a measure of marginal costs. I modify the assumption of a constant elasticity of demand, standard in this model, to provide a channel through which an increase in the number of traded goods may affect the degree of strategic complementarity in price setting, and hence alter the dynamic response of inflation to marginal costs. I first discuss the behavior of the variables that drive the impact of trade openness on this response, and then I evaluate whether an increase in the variety of traded goods of the size observed in the US in the `90s might have a sizable quantitative impact. I find that it is difficult to argue that such an increase in trade should have generated an increase in US market competition leading to a decline in the slope of the inflation-marginal cost relation. |
| JEL: | E31 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13556&r=com |
| By: | Korn, Evelyn; Lengsfeld, Stephan |
| Abstract: | Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules to curb transfer-price distortions. Affected firms include the decision of compliance to these rules into their strategic considerations. In a scenario with arm's-length regulation in two countries, we analyze the transfer-pricing policy of a firm that uses the same transfer price for tax and managerial incentive purposes. Thus, the transfer-pricing policy is driven by three issues: interaction with competitors, minimization of tax burden, and avoidance of punishments. The model shows that tighter transfer-pricing rules may help firms to mitigate competition and to increase their profits and that non-compliance to the arm's-length principle is part of their equilibrium strategy. |
| Keywords: | transfer prices, taxes, arm's-length principle, one set of books, duopolistic competition, enforcement. |
| JEL: | H25 L22 M40 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-378&r=com |