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on Industrial Competition |
| By: | Simon Loertscher; Andras Niedermayer |
| Abstract: | Mechanisms where sellers set the price and are charged a linear commission fee are widely used by real world intermediaries, e.g. by real estate brokers. Empirically these commission fees exhibit very little variance, both across heterogeneous regional markets and over time. So far, there is no theoretical explanation why such seller price setting mechanisms are used and why the linear fees vary so little. In this paper, we first show that in a Bayesian setup seller price setting with linear fees is revenue equivalent to the intermediary optimal direct mechanism derived by Myerson and Satterthwaite (1983) if and only if the seller’s cost is drawn from a generalized power distribution. Whenever such a mechanism is optimal, the fee structure is independent of the distribution from which the buyer’s valuation is drawn. Second, we derive the intermediary optimal direct mechanism when there are many buyers and possibly many sellers and we show that with one seller any standard auction with linear fees and reserve price setting by the seller (which are used e.g. by eBay) implements this mechanism if the seller’s cost is drawn from a power distribution and if buyers’ valuations are identically distributed. Third, we show that when the number of buyers approaches infinity while there is still one seller, seller price setting and price setting by the intermediary are equivalent, intermediary optimal mechanisms. |
| Keywords: | Brokers; linear commission fees; optimal indirect mechanisms |
| JEL: | C72 C78 L13 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0706&r=com |
| By: | Bruce A. Blonigen; Benjamin H. Liebman; Wesley W. Wilson |
| Abstract: | A primary function of trade policy is to restrict imports to benefit the targeted domestic sector. However, a well-established theoretical literature highlights that the form of trade policy (e.g., quotas versus tariffs) can have a significant impact on how much trade policy affects firms’ abilities to price above marginal cost (i.e., market power). The US steel industry provides an excellent example to study these issues, as it has received many different types of trade protection over the past decades. We model the US steel market and then use a panel of data on major steel products from 1980 through 2006 to examine the effects of various trade policies on the steel market. We find that the US steel market is very competitive throughout our sample with the exception of the period in which they received comprehensive voluntary restraint agreements (i.e., quotas) and were able to price substantially above marginal cost. All other forms of protection were in tariff form and had little effect on market power, consistent with prior theoretical literature on the nonequivalence of tariffs and quotas. We also find evidence that market power eroded over time in steel products where mini-mill producers gained sizeable market share, highlighting the role of technology in the market as well. |
| JEL: | F13 F23 L11 L61 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13671&r=com |
| By: | Ghosh, Arghya (School of Economics, Australian School of Business at the University of New South Wales); Kato, Takao (Department of Economics, Colgate University); Morita, Hodaka (School of Economics, Australian School of Business at the University of New South Wales) |
| Abstract: | Does competitive pressure foster innovation? In addressing this important question, prior studies ignored a distinction between discrete innovation aiming at entirely new technology and continuous improvement consisting of numerous incremental improvements and modifications made upon the existing technology. This paper shows that distinguishing between these two types of innovation will lead to a much richer understanding of the interplay between firm incentives to innovate and competitive pressure. In particular, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms' incentives to conduct continuous improvement, and that an increase in the size of discrete innovation may decrease firms' incentives to conduct continuous improvement. A unique feature of this paper is its exploration of the model's real-world relevance and usefulness through field research. Motivated by recent declines in levels of continuous improvement in Japanese manufacturing, we conducted extensive field research at two Japanese manufacturing firms. After presenting our findings, we demonstrate that our model guides us to focus on several key changes taking place at these two firms; discover their interconnectedness; and finally ascertain powerful underlying forces behind each firm’s decision to weaken its investment in traditional continuous improvement activities. |
| Keywords: | Competitive Pressure, Continuous Improvement, Discrete Innovation, Field Research, Location Model, Product Substitutability, Small Group Activities, Technical Progress |
| JEL: | L10 L60 M50 O30 |
| Date: | 2006–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:cgt:wpaper:104-27&r=com |
| By: | Andras Niedermayer |
| Abstract: | We consider a firm A initially owning a software platform (e.g. operating system) and an application for this platform. The specific knowledge of another firm B is needed to make the platform successful by creating a further application. When B’s application is completed, A has incentives to expropriate the rents. Netscape claimed e.g. that this was the case with its browser running on MS Windows. We will argue that open sourcing or standardizing the platform is a warranty for B against expropriation of rents. The different pieces of software are considered as assets in the sense of the property rights literature (see Hart and Moore (Journal of Political Economy, 1990)). Two cases of joint ownership are considered beyond the standard cases of integration and non-integration: platform standardization (both parties can veto changes) and open source (no veto rights). In line with the literature, the more important a party’s specific investments the more rights it should have. In contrast to Hart and Moore, however, joint ownership can be optimal in our setting. Open source is optimal if investments in the applications are more important than in the platform. The results are driven by the fact that in our model firms invest in physical (and not in human) capital and that there is non-rivalry in consumption for software. |
| Keywords: | Platforms; open source; standardization; incomplete contracts; property rights; joint ownership |
| JEL: | C70 D23 L13 L22 L86 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0707&r=com |
| By: | Fabrizi, Simona; Lippert, Steffen; Norback, Pehr-Johan; Persson, Lars |
| Abstract: | This paper constructs a model where entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We first show that aggressive development of a basic innovation by better informed venture-backed firms is used as a signaling device to enhance the sale price of the innovation. We then show that incumbents can undertake early, preemptive, acquisitions to prevent such signaling driven overinvestment, despite the risk of buying a non-productive innovation. Therefore, to exist in equilibrium, venture capitalists must be sufficiently more efficient in selecting innovation projects, otherwise preemptive acquisitions will take place. |
| Keywords: | venture-backed firm; innovation; signaling; overinvestment; interim development; M&A |
| JEL: | D21 L2 C7 D82 M13 G24 O3 |
| Date: | 2007–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6265&r=com |
| By: | Ricardo Arguello; María Clara Lozano |
| Abstract: | In this chapter we provide a summary description of Colombian Competition Policy with an emphasis on the agricultural sector. Key developments and recent changes in institutional arrangements affecting competition policy, as it applies to the agricultural sector, are highlighted. Illustrative case studies are depicted to show the richness and complexity of policy developments and enforcement. Some general conclusions are drawn from this examination. |
| Date: | 2007–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:004368&r=com |
| By: | Felix Höffler; Sebastian Kranz |
| Abstract: | We study an industry in which an upstream monopolist supplies an essential input at a regulated price to several downstream firms. Legal unbundling means that a downstream firm owns the upstream firm but this upstream firm is legally independent and maximizes its own upstream profits. We allow for non-tariff discrimination by the upstream firm and show that under quite general conditions legal unbundling yields (weakly) higher quantities in the downstream market than vertical separation and integration. Therefore, typically consumer surplus will be largest under legal unbundling. Outcomes under legal unbundling are still advantageous when we allow for discriminatory capacity investments, investments into marginal cost reduction and investments into network reliability. If access prices are unregulated, however, legal unbundling may be quite undesirable. |
| Keywords: | Network industries, regulation, vertical relations, investments, ownership, sabotage |
| JEL: | D2 D4 L1 L42 L43 L51 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse15_2007&r=com |
| By: | Jose Apesteguia (Universitat Pompeu Fabra); Steffen Huck (University College London, Department of Economics); Jörg Oechssler (University of Heidelberg, Department of Economics); Simon Weidenholzer (University of Vienna, Department of Economics) |
| Abstract: | A well-known result by Vega-Redondo implies that in symmetric Cournot oligopoly, imitation leads to the Walrasian outcome where price equals marginal cost. In this paper we show that this result is not robust to the slightest asymmetry in fixed costs. Instead of obtaining the Walrasian outcome as unique prediction, every outcome where agents choose identical actions will be played some fraction of the time in the long run. We then conduct experiments to check this fragility. We obtain that, contrary to the theoretical prediction, the Walrasian outcome is still a good predictor of behavior. |
| Keywords: | Evolutionary game theory; Stochastic stability; Imita- tion; Cournot markets; Information; Experiments; Simulations |
| JEL: | C72 C91 C92 D43 L13 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0461&r=com |
| By: | Facundo Albornoz |
| Abstract: | We model subsidy competition for a foreign MNC’s investment in two potential PTA partners. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment. Competition between countries results in welfare losses, even more so if spillovers from the MNC’s presence exist. Hence in many cases a ban on subsidies may increase welfare. In addition, we show how trade integration affects the prospects for social waste. |
| Keywords: | Subsidy Competition, FDI, Greenfield Investment, Mergers and Acquisitions, Regional Integration, Spillovers |
| JEL: | F15 F21 F23 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:05-15r&r=com |