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on Industrial Competition |
| By: | Mattias Ganslandt (Research Institute of Industrial Economics (IFN)); Lars Persson (Research Institute of Industrial Economics (IFN) and CEPR); Helder Vasconcelos (Universidade Católica Portuguesa and CEPR) |
| Abstract: | In their merger control, EU and the US have considered symmetric size distribution (cost structure) of firms to be a factor potentially leading to collusion. We show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with higher risk of collusion, when firms face indivisible costs of collusion. In particular, we show that if the rule determining the collusive outcome has the property that the large (efficient) firm benefits sufficiently more from collusion when industry asymmetries increase, collusion can become more likely when firms are moderately asymmetric. |
| Keywords: | Collusion; Cost Asymmetries; Merger Policy |
| JEL: | D43 L41 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:pca:wpaper:28&r=com |
| By: | Gehrig, Thomas; Shy, Oz; Stenbacka, Rune |
| Abstract: | We evaluate behaviour-based price discrimination from an antitrust perspective by focusing on an industry with inherited market dominance. Under horizontal differentiation behaviour-based pricing does not by itself lead to persistence of dominance unless the dominant firm is protected by significantly higher switching costs than its small rival. This result continues to hold even if the dominant firm can use behaviour-based pricing to compete against an entrant with no access to consumers' purchase histories. Under vertical differentiation behaviour-based pricing enhances the dominance of the high-quality seller and, hence, consumer welfare. |
| Keywords: | behavior-based pricing; consumer loyalty; horizontal and vertical differentiation; market dominance; poaching; price discrimination |
| JEL: | D4 L1 L41 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6571&r=com |
| By: | Ramon Casadesus-Masanell (Harvard Business School); Barry Nalebuff (Yale School of Management); David B. Yoffie (Harvard Business School) |
| Abstract: | In Cournot's model of complements, the producers of A and B are both monopolists. This paper extends Cournot's model to allow for competition between complements on one side of the market. Consider two complements, A and B, where the A+B bundle is valuable only when purchased together. Good A is supplied by a monopolist(e.g., Microsoft) and there is competition in the B goods from vertically differentiated suppliers (e.g., Intel and AMD). In this simple game, there may not be a pure-strategy equilibria. In the standard case where marginal costs are weakly positive, there is no pure strategy where the lower quality B firm obtains positive market share. We also consider the case where A has negative marginal costs, as would arise when A can expect to make upgrade sales to an installed base. When profits from the installed base are sufficiently large, a pure strategy equilibrium exists with two B firms active in the market. Although there is competition in the complement market, the monopoly Firm A may earn lower profits in this environment. Consequently, A may prefer to accept lower future profits in order to interact with a monopolist complement in B. |
| Keywords: | AMD, complementors, complements, co-opetition, equilibrium non-existence, installed base, Intel, Microsoft, pricing. |
| JEL: | C72 D43 K21 L13 L15 M21 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0744&r=com |
| By: | Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Jürgen-Peter Kretschmer (Faculty of Business Administration and Economics, Philipps Universitaet Marburg) |
| Abstract: | We demonstrate that the popular Farrell-Shapiro-framework (FSF) for the analysis of mergers in oligopolies relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false positives. In addition, we conclude that the FSF need to be explicitly complemented by a freedom of competition principle in order to make it workable as a basis for an economics-based merger policy. |
| Keywords: | oligopoly theory, horizontal merger policy, profitability of mergers, freedom of competition, antitrust |
| JEL: | L13 L41 K21 D43 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mar:volksw:200714&r=com |
| By: | Kerem Cakirer (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: | This paper studies endogenous integration decisions of firms and its competitive effects in a complementary market setting where downstream firms sell a product which must have a compatible variety of products that are supplied by upstream firms. I present the conditions under which a downstream firm will prefer integrating with an upstream firm, and conditions under a counter merger of firms occur. The analysis shows that a vertical merger is more likely to occur whenever one of the upstream firm is significantly productive than the other. Competitive effect of a integration of two firms can lead to a counter integration of rivals post integration. Counter integration is likely whenever both upstream firms are highly productive. In addition to a vertical merger and two vertical mergers, contracting under independent ownership can also be the method of procuring. As a result, no integration activity can be observed. The results are obtained in a general two downstream firms and two upstream firms market setting that allows efficient compatibility contracts between upstream and downstream producers. |
| Keywords: | Endogenous Vertical Integration, Positive Externality, Complementary Products, Product Variety |
| JEL: | D21 L22 L4 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2007-18&r=com |
| By: | Michele Moretto (Università di Padova) |
| Abstract: | We examine the effect of competition on investment decisions in an industry in which each firm has a completely irreversible investment opportunity and the product market has positive externalities for a small market size and negative externalities for a large market size. In the latter case, which corresponds to the traditional competitive industries, firms invest sequentially as market profitability develops. In the former case, which corresponds to industries in which investment is mutually beneficial, firms invest simultaneously after the market's profitability has developed sufficiently to gain all network benefits and to recover the option value of waiting. These extensions of a real options analysis may help explain rapid and sudden developments such as recent Internet investment, or explain the late take-off phenomenon of prolonged start-up problems, such as the case of fax machine production. |
| Keywords: | Irreversible Investments, Real Options, Network Effects |
| JEL: | C61 D81 G31 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0058&r=com |
| By: | Michiel van Leuvensteijn (Netherlands Bureau for Economic Policy Analysis); Jacob A. Bikker (De Nederlandsche Bank); Adrian van Rixtel (Banco de España); Christoffer Kok-Sørensen (European Central Bank) |
| Abstract: | This paper is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. A caveat of the Boone-indicator may be that it assumes that banks generally pass on at least part of their efficiency gains to their clients. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major euro countries as well as, for comparison, the UK, the US and Japan. Bearing the mentioned caveats in mind, our findings indicate that over the period 1994-2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive. Turning to competition among specific types of banks, commercial banks tend to be more competitive, particularly in Germany and the US, than savings and cooperative banks. |
| Keywords: | banking industry, competition, loan markets, marginal costs, market shares |
| JEL: | D4 G21 L1 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0736&r=com |
| By: | Kenneth S. Corts (Rotman School of Management, University of Toronto); Mara Lederman (Rotman School of Management, University of Toronto); |
| Abstract: | This paper investigates the scope of indirect network effects in the home video game industry. We argue that the increasing prevalence of non-exclusive software gives rise to indirect network effects that exist between users of competing and incompatible hardware platforms. This is because software non-exclusivity, like hardware compatibility, allows a software firm to sell to a market broader than a single platform’s installed base, leading to a dependence of any particular platform’s software on all firms’ installed bases. We look for evidence of these market-wide network effects by estimating a model of hardware demand and software supply. Our software supply equation allows the supply of games for a particular platform to depend not only on the installed base of that platform, but also on the installed base of competing platforms. Our results indicate the presence of both a platform-specific network effect and – in recent years – a cross-platform (or generation-wide) network effect. Our finding that the scope of indirect network effects in this industry has widened suggests one reason that this market, which is often cited as a canonical example of one with strong indirect network effects, is no longer dominated by a single platform. |
| Keywords: | network effects, software exclusivity, video games |
| JEL: | L11 L15 L82 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0743&r=com |
| By: | Thomas Grebel (Friedrich-Schiller-University Jena, Department of Economics); Tom Wilfer (Friedrich-Schiller-University Jena, Department of Economics) |
| Abstract: | The paper aims to investigate the diffusion process of two competing innovative technologies in the health care sector. Novelties in cardiovascular surgery will serve as an example. Using a rather simple modeling approach for the ecisions of adopters and suppliers we simulate the evolution of a new market and iscuss the effects network externalities and individual learning unfold in different scenarios. Increasing returns to adoption may lead to situations of technological "lock in". |
| Keywords: | technological change, diffusion processes, competing technologies, adoption decisions, social learning, medical equipment,network externalities. |
| JEL: | O33 I11 D43 |
| Date: | 2007–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-091&r=com |
| By: | Rudy Douven; Harm Lieverdink; Marco Ligthart; Ivan Vermeulen |
| Abstract: | This paper proposes a new method for estimating annual price elasticities from market share data of health insurers. In contrast to traditional methods the elasticity is derived from bilateral price elasticities which relate the net share of switchers between two health insurers not only to their premium difference but also to the market share and premium of the higher priced health insurer. Our new method explains the annual variation in the Dutch market share data better than the traditional methods. We find in the Dutch social health insurance for the period 1996- 2005 rather low negative annual price elasticities ranging between -1 and 0. In that period stickiness of insurer choices was high and less than 5% of the population switched annually from health insurer. This result, however, was in sharp contrast with an exceptional high price elasticity of -7 for the year 2006, where after a major health care reform about 18% of the population switched mostly to lower priced health insurers. Besides large media coverage, one important difference with previous years was that many consumers holding an individual contract could switch to a lower priced group contract. |
| Keywords: | health plan choice; premium elasticities; switching costs |
| JEL: | D12 I11 I18 L11 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:90&r=com |
| By: | Scarpa, Carlo; Polo, Michele |
| Abstract: | This paper examines competition in the liberalized natural gas market. Each .firm has zero marginal cost core capacity, due to long term contracts with take or pay obligations, and additional capacity at higher marginal costs. The market is decentralized and the firms decide which customers to serve, competing then in prices. In equilibrium each .firm approaches a different segment of the market and sets the monopoly price, i.e. market segmentation. Antitrust ceilings do not prevent such an outcome while the separation of wholesale and retail activities and the creation of a wholesale market induces generalized competition and low margins in the retail segment. |
| Keywords: | Entry; Segmentation; Decentralized market |
| JEL: | L11 L13 L95 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5861&r=com |
| By: | Chernyavs’ka, Liliya; Gullì, Francesco |
| Abstract: | In line with economic theory, carbon ETS determines a rise in marginal cost equal to the carbon opportunity cost regardless of whether carbon allowances are allocated free of charge or not. Hence, common sense would suggest that .rms in imperfectly competitive markets will pass-through into electricity prices only a part of the increase in cost. Instead, by using the load duration curve approach and the dominant .rm with competitive fringe model, the analysis proposed in this paper shows that the result is ambiguous. The increase in price can be either lower or higher than the marginal CO2 cost depending on several structural factors: the degree of market concentration, the available capacity (whether there is excess capacity or not) and the power plant mix in the market; the allowance price and the power demand level (peak vs. off-peak hours). The empirical analysis of the Italian context (an emblematic case of imperfectly competitive market), which can be split in four sub-markets with different structural features, confirms the model predictions. Market power, therefore, can determine a significant deviation from the "full pass-through" rule but we can not know which is the sign of this deviation, a priori, i.e. without before carefully accounting for the structural features of the power market. |
| Keywords: | Emission trading; power pricing; imperfect competition |
| JEL: | Q41 L13 Q21 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5866&r=com |
| By: | Frédéric Deroïan; Christian Milelli; Zouhaïer M’Chirgui |
| Abstract: | This paper describes inter-firm partnerships in three major high-tech industries over the 1985-2005 period. We found that the architecture of the respective networks had evolved toward a 'small world' in the early 1990s. We also found that the number of alliances collapsed in the late 1990s. This result roughly follows the number of patents granted in the respective industries and is correlated to an increase in market concentration, and to some extent to the rising number of mergers and acquisitions. |
| Keywords: | Innovation, R&D Partnerships, High-Tech Industries, Network Architecture |
| JEL: | L24 L6 O31 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2007-24&r=com |
| By: | Antonio, Massarutto |
| Abstract: | The theoretical and empirical literature on water supply and sewerage liberalization is reviewed in this paper in order to discuss the potential for market creation and private sector involvement in this sector. The analysis is framed in the “policy roadmap” developed by regulatory economics and discusses opportunities for competition in the market, unbundling, competition for the market and yardstick competition. A review of studies comparing privately and publicly managed water utilities is finally provided. |
| Keywords: | Water supply and sewerage; liberalization; private sector involvement; water infrastructure; economic regulation |
| JEL: | H54 L51 L95 L33 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5864&r=com |
| By: | Lutz, Clemens; Kemp, Ron; Dijkstra, S. Gerhard (Groningen University) |
| Abstract: | Abstract Extant literature discusses a large number of different entry barriers that may hamper market efficiency or entrepreneurial activity. In practice several of these barriers cohere and stem from the same root. Factor analysis is used to identify the underlying dimensions of these barriers. 7 generic factors have been found that drive the system. In the literature a debate exists between scholars that stress the importance of structural and/or strategic barriers. This paper shows that in the perception of firms both types of barriers are important and argues that the effectiveness of strategic barriers depends on attributes of the market structure. Based on the seven generic factors, a conjoint analysis is carried out to identify the most important factors perceived by firms. The conjoint analysis shows that in particular the barriers rooted in three underlying dimensions require attention of market authorities as they may refrain new entrants from entry: finance, access to distribution channels and strategic action. Remarkably, government rules and regulations, product differentiation, R&D and advertising constitute a minor entry problem according to the firms. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:07009&r=com |
| By: | O. Amerighi; G. De Feo |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:605&r=com |
| By: | Ricardo Paes Mamede (GEE, Ministério da Economia e da Inovação; Faculdade de Economia, Instituto Universitário de Lisboa - ISCTE); Daniel Mota (Instituto Nacional de Estatística); Manuel Mira Godinho (Instituto Superior de Economia e Gestão, Universidade Técnica de Lisboa) |
| Abstract: | The concept of «knowledge-based industries» (KBIs) has been widely used both in the academy and in policy-making over the last decade, due to the increasing role those industries play – both in terms of value added and employment – in contemporary, advanced economies. In this paper we discuss the extent to which KBIs differ from other industries in what concerns some of the stylised facts and regularities of industry dynamics usually found in the literature. In particular, we analyse the patterns and the determinants of firm entry and post-entry performance (measured in terms of survival of new firms), comparing KBIs groups with the remaining industries, using data for the Portuguese economy in the second half of the 1990s. We find that KBIs and the firms within them show some signs of distinctiveness in their dynamics as compared to the general case. In particular, on average, KBIs firms have higher survival chances, and entry within the KBIs groups is less responsive to incentives. |
| Keywords: | knowledge-based industries; market entry; firm survival |
| JEL: | L29 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0003&r=com |
| By: | Manuel Portugal Ferreira (Instituto Politécnico de Leiria, Portugal); Sungu Armagan (Florida International University, USA); Dan Li (Indiana University, USA) |
| Abstract: | Based on a case study of a Portuguese packaging firm, this paper examines how vertical integration of the supplier serves as a vehicle for the full outsourcing of the client firms' needs in a solution that reduces transaction costs, favors specialization, and permits small and mediumsized firms to develop competencies that may be exploited in a wide array of projects. Vertical integration by the supplier (a governance decision) is a strategic response to changes in the sourcing model of the clients. Client-supplier relationships have inter-spatial and inter-temporal value that surpasses spot market exchanges. |
| Keywords: | strategic outsourcing, vertical integration, internationalization, case study |
| JEL: | M1 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pil:wpaper:4&r=com |
| By: | Pauna, Catalin; De Ro sa, Donato; Fay, Marianne |
| Abstract: | Less restrictive product market policies are crucial in promoting convergence to higher levels of GDP per capita. This paper benchmarks product market policies in Romania to those of OECD countries by estimating OECD indicators of Product Market Regulation (PMR). The PMR indicators allow a comprehensive mapping of policies affecting competition in product markets. Comparison with OECD countries reveals that Romania ' s product market policies are less restrictive of competition than most direct comparators from the region and not far from the OECD average. Nonetheless, this achievement should be interpreted in light of the fact that PMR approach measures officially adopted policies. It does not capture implementation and enforcement, the area where future reform efforts should be directed if less restrictive policies are to have an effective impact on long-term growth prospects. |
| Keywords: | Public Sector Regulation,Transport Economics Policy & Planning,E-Business,Emerging Markets,Markets and Market Access |
| Date: | 2007–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4402&r=com |
| By: | Ilieva, Stella; De Rosa, Donato; Fay, Marianne |
| Abstract: | Less restrictive product market policies are crucial in promoting convergence to higher levels of GDP per capita. This paper benchmarks product market policies in Bulgaria to those of OECD countries by estimating OECD indicators of Product Market Regulation (PMR). The PMR indicators allow a comprehensive mapping of policies affecting competition in product markets. Comparison with OECD countries reveals that Bulgaria has made substantial progress towards less restrictive product market policies but also emphasizes a number of areas where further reform is needed. These include adoption of a regulatory process based on incentive-based rather than command-and-control approach, reduction of state interference in the decision of state-owned enterprises, further streamlining of business licensing procedures, and improvement in the communication of rules and procedures to affected parties. |
| Keywords: | Transport Economics Policy & Planning,Public Sector Regulation,E-Business,Emerging Markets,Markets and Market Access |
| Date: | 2007–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4393&r=com |