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on Industrial Competition |
| By: | Philippe Aghion (Harvard University); Thibault Fally (Paris-Jourdan Sciences Economiques); Stefano Scarpetta (OECD and IZA) |
| Abstract: | Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses. |
| Keywords: | financial development, entry, post-entry growth, firm size, micro data |
| JEL: | D21 D92 L11 G32 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3237&r=com |
| By: | Emilie Dargaud (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | In this paper, we study the optimal number of active firms in a<br />coalition and in a merger. We consider two kinds of game : a merger game<br />and a coalition game, both in the context of price competition with horizontal<br />product differentiation. These are two-stage games. The first stage consists<br />of determining the number of active firms; the second stage is price competition<br />between active firms. Firms belonging to the same owner or to the<br />same coalition play cooperatively between themselves but face competition<br />between other firms.<br />We show that when there is no competitive pressure (i.e. no outside firm)<br />then only merged equilibria can occur in the merger case. In the coalition<br />case we obtain a similar result in which the number of active firms in the<br />second stage is less than the initial number of firms.<br />Moreover we show that if competitive pressure is high enough then the<br />initial number of firms in the industry is the same as the number of active<br />firms in the last stage for each kind of game. |
| Keywords: | Mergers ; Coalitions ; Product differentiation |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00164900_v1&r=com |
| By: | Ganslandt, Mattias (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Intellectual property rights and competition policy are intimately related. In this paper I survey the economic literature analyzing the interaction between intellectual property law and competition law and how the boundary between these two policies is drawn in practice. Recognizing that intellectual property rights and competition law can interact in many different ways, the presentation focuses on several key issues. The economic literature on the interaction between competition law and intellectual property rights shows that these regulatory systems are consistent in terms of basic principles. Significant tensions exist, however, and it is difficult to balance IPR and competition law in practice. The significant differences in approach between the United States and the European Union simply reflect the underlying reality that efforts to achieve a sensible balance do not result in policy harmonization. |
| Keywords: | IPR; Competition Policy; Antitrust Policy; Cross-licensing; Refusal to License; Patent Pools; Tying; Patent Litigation |
| JEL: | K21 L41 O31 O34 |
| Date: | 2008–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0726&r=com |
| By: | Enrico Beretta (Bank of Italy, Branch of Genoa, Research Office); Silvia Del Prete (Bank of Italy, Branch of Florence, Research Office) |
| Abstract: | Using Bank of Italy data on Italian banks in the period 1990-2004, the paper analyses the short and long-run effects of the concentration of the banking industry on the availability of credit to small and medium-sized firms. Our study employs a bank-based approach and investigates the differential effects of banking consolidation in the various geographical areas, in order to capture the influence of the different economic contexts. Our research also considers the different groups of intermediaries involved, as well as the role of “new entry” banks and of those not involved in consolidations (e.g. rivals). We find that banks’ specialization in terms of credit policy seems to be affected by M&As. On the one hand, the portion of credit allocated to small businesses decreases in the long run after mergers, which result in a more pronounced size change and a more complex organizational structure; this effect is stronger in the South and in the North East of Italy. On the other hand, in the case of acquisitions, banking groups improve their “expertise” in small business lending. These results hold in all the main geographical areas, except for the southern regions, where – everything being equal – small firms are riskier and banks’ takeovers are motivated mainly by the need to allow financial restructuring. However, in this market, the entry of new banks and close relationships between local banks and agglomerations of small firms partly offset the lower specialization on small business financing induced by acquisitions. |
| Keywords: | mergers and acquisitions, small business lending, regional analysis |
| JEL: | G21 G34 O18 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_644_07&r=com |
| By: | Amanda Carmignani (Bank of Italy); Massimo Omiccioli (Bank of Italy) |
| Abstract: | High concentration of creditors can have two beneficial effects on borrowers: i) by enhancing lendersÂ’ ability to monitor, it can reduce the likelihood of financial distress; ii) by reducing coordination failure among creditors, it can help a distressed firm to avoid bankruptcy. However, a strong probability of debt renegotiation can exert a feedback effect on the likelihood of financial distress, by generating perverse ex-ante incentives for borrowers (soft budget constraint). Moreover, high concentration of creditors can expose borrowers to greater liquidity risks. Using Italian data on manufacturing firms, we try to separate empirically these conflicting effects. Our results show that, if we control for the soft-budget-constraint and liquidity effects, high concentration of bank credit reduces the likelihood of financial distress and liquidation, as predicted by the literature on relationship banking. But these benefits do not come without costs: i) enhanced monitoring is offset by the soft-budget-constraint effect and ii) higher concentration of credit lines increases liquidity risks and thus makes both financial distress and liquidation more likely. Ultimately, the overall effect of more concentrated banking relations is a lower probability of liquidation but a higher probability of financial distress. This helps to explain the widespread existence of multiple but asymmetric banking relations in Italy. |
| Keywords: | financial distress, liquidazione, monitoring, relationship lending, soft budget constraint |
| JEL: | G21 G33 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_645_07&r=com |
| By: | Vareda, João |
| Abstract: | We study the impact of access regulation in a telecommunications market on an entrant's decision whether to invest in a network or ask for access when the regulator cannot observe its potential demand. Since the entrant has incentives to not compete vigorously right after entry in order to convince the regulator that it needs cheap access in the future, the regulator must set access prices which tend to be distorted (lower or higher) as compared to ?rst best. Still, this is better than committing to ignore ex post demand information. Consulting the entrant earlier about its expectations improves welfare and may help to achieve the first best. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp525&r=com |
| By: | Vareda, João; Hoernig, Steffen |
| Abstract: | We analyze the impact of mandatory access on the infrastructure investments of two competing communications networks, and show that for low (high) access charges ?rms wait (preempt each other). Contrary to previous results, under preemption a higher access charge can delay ?rst investment. While ?rst-best investment cannot be achieved with a ?xed access tari¤, simple instruments such as banning access in the future, or granting access holidays right after investment, can improve e¢ ciency. The former forces investment when it would happen too late, while the latter allows for lower access charges in order to delay the second investment when it would happen too early. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp524&r=com |
| By: | Vareda, João |
| Abstract: | We study the investment of a telecommunications incumbent in quality and in cost reduction when an entrant can use its network through unbundling of the local loop. We ?nd that unbundling may lower incentives for quality improvements, but raises incentives for cost reduction. Therefore, it is not true that all types of investment are crowded out with unbundling. If the regulator can commit to a socially optimal unbundling price before investment, the incumbent makes both types of investment. In the absence of commitment, the incumbent will not invest, so that unbundling regulation may lower welfare as compared to no regulation. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp526&r=com |
| By: | Iimi, Atsushi |
| Abstract: | In public-private partnership transactions in the water sector, one of the alleged concerns is that there is little market competition at the auction stage. This paper casts light on a tradeoff between the competition effect at the auction level and potential economies of scale in service operation. If the authorities design a large-scale public-private partnership water transaction, it is expected to exploi t operational scale economies. But the competition effect may have to be sacrificed. The paper shows a risk that the selection of the contract size could be a very restrictive condition that excludes many prospective bidders. Moreover, the paper quantifies the optimal size of public-private partnership contracts in the sector by estimating a cost function. The analysis shows that economies of scale exist but tend to diminish quickly as production increases. When the amount of water sold exceeds about 40 million m3, the statistical significance of economies of scale disappears. And there is no rationale for auctioning the water operation with annual water delivery of more than 400 million m3 under a single contract. |
| Keywords: | Town Water Supply and Sanitation,Water Supply and Sanitation Governance and Institutions,Water and Industry,Water Conservation,Urban Water Supply and Sanitation |
| Date: | 2008–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4459&r=com |
| By: | Moschini, GianCarlo; Menapace, Luisa; Pick, Daniel |
| Abstract: | The economics of geographical indications (GIs) is assessed within a vertical product differentiation framework that is consistent with the competitive structure of the agricultural sector with free entry/exit. It is assumed that certification costs are needed for GIs to serve as (collective) credible quality certification devices, and production of high-quality product is endogenously determined. We find that GIs can support a competitive provision of quality that partly overcomes the market failure and leads to clear welfare gains, although they fall short of delivering the (constrained) first-best level of the high-quality good. The main beneficiaries of the welfare gains are consumers. Producers may also accrue some benefit if the production of high-quality products draws on scarce factors that they own. |
| Keywords: | competitive industry; free entry/exit; geographical indications; Marshallian stability; quality certification; trademarks; welfare. |
| Date: | 2008–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12858&r=com |
| By: | Frédéric Marty (IDEFI - Institut de droit et d'économie de la firme et de l'industrie - CNRS : FRE2814 - Université de Nice Sophia-Antipolis); Arnaud Voisin (Observatoire économique de la défense - Ministère de la Défense) |
| Abstract: | Private finance has brought to public-private partnerships a third-party overlook on the contracts. Bringing into the appraisal of PPP deals banks and rating agencies results in outsourcing the due diligence of the project to the party best suited to perform it. This reduction in asymmetries of information can occur both in the competition for the market stage or in the competition within the market stage (yardstick competition).<br /><br />At the negotiation stage, funding competition helps to increase the public sector's information on the deal. Of course, the cost of collecting this information should not overweight the savings it induces. In order to maintain competitive pressure through the lifecycle of the project, value testing schemes, as benchmarking or market testing are used. However, they induce concerns about transaction costs and could reduce the certainty about the charge for the public partner. |
| Keywords: | Private finance initiative, asymmetries of information, funding competition |
| Date: | 2008–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00202327_v1&r=com |
| By: | FRIEBEL, Guido; MAGNAC, Thierry |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:7590&r=com |
| By: | Bernardita Vial (Instituto de Economía. Pontificia Universidad Católica de Chile.) |
| Abstract: | In this paper we analyze a reputation-based mechanism that sustains the provision of high quality in a market for an experience good. In contrast to existing models of reputation, however, we consider a competitive market: there is a continuum of firms, each serving at most one consumer each period. We assume a perpetual probability of type replacement and imperfect public monitoring, and we analyze the evolution of firms' reputations in the high quality equilibrium. We find that there is an invariant long run distribution of firms' reputations: each firm's reputation changes every period even in the long run, but the population distribution of reputations remains constant. We consider the long run distribution of firms' reputations to further characterize the steady-state high quality equilibrium. In the equilibrium of the stage game firms with a higher reputation charge a higher price. Furthermore, we show that if the cost of high quality is decreasing in some consumer's characteristic, then buyers pay personalized prices in equilibrium. |
| Keywords: | reputation, incomplete information, perfect competition, general equilibrium |
| JEL: | C70 D80 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:327&r=com |
| By: | Christiane Schwieren (Sonderforschungsbereich 504, University of Mannheim, Germany); Doris Weichselbaumer (Department of Economics, Johannes Kepler University Linz, Austria) |
| Abstract: | In this paper we experimentally test whether competing for a desired reward does not only affect individuals’ performance, but also their tendency to cheat. Recent doping scandals in sports as well as forgery and plagiarism scandals in academia have been partially explained by „competitive pressures“, which suggests a link between competition and cheating. In our experiment subjects conduct a task where they have the possibility to make use of illegitimate tools to better their results. We find that women react much stronger to competitive pressure by increasing their cheating activity while there is no overall sex difference in cheating. However, the effect of competition on women’s cheating behavior is entirely due to the fact that women, on average, are doing worse with respect to the assigned task. Indeed we find that it is the ability of an individual to conduct a particular task and not sex that crucially affects the reaction to competition. Poor performers significantly increase their cheating behavior under competition which may be a face-saving strategy or an attempt to retain a chance of winning. |
| Keywords: | competition; tournament; piece rate; cheating; experiment |
| JEL: | C91 J24 J31 M52 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2008_01&r=com |