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on Industrial Competition |
| By: | Kim, Jaesoo |
| Abstract: | I develop a simple Hotelling model which relates the distribution of consumer preferences to the intensity of competition. I impose two properties, mean preserving spread (MPS) and monotone likelihood ratio property (MLRP), on distribution functions. These properties provide a way to represent the intensity of competition in the Hotelling model. Market competition is less intense as the distribution is dispersed in that the MPS raises firms' equilibrium prices. This approach can describe how the intensity of competition influences the effects of firm's various strategies, which has been largely neglected in most papers. Non-uniform distributions can reverse some well-known results derived under the uniform distribution dramatically. They also allow us to discover new results that the uniform distribution could not demonstrate. As examples, I study three issues such as incentives for innovation, preference based price discrimination, and incentives for information sharing. |
| Keywords: | Hotelling model, intensity of competition, mean-preserving spread (contraction), monotone likelihood ratio property, innovation, preference-based price discrimination, information sharing |
| JEL: | L10 D82 D43 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2741&r=com |
| By: | Ian McCarthy (Indiana University Bloomington) |
| Abstract: | We analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price and location. We study existence, stability, and comparative statics in such a setting, compare the market advertising level to the socially optimal level, and find conditions in which firms advertise more or less than the social optimum. |
| Keywords: | Search, Advertising, Welfare |
| JEL: | D21 D43 D83 M37 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2008-003&r=com |
| By: | Czarnitzki, Dirk; Kraft, Kornelius |
| Abstract: | Knowledge spillovers to competitors are regarded as an important aspect of the innovation process. While a company possibly benefits from incoming information on successful R&D conducted by other companies, a generally high probability of leakage of knowledge in an industry will negatively affect profitability. This paper presents the results of an empirical study on the effects of outgoing and incoming spillovers on firms’ profitability. It turns out that the expected asymmetry is actually at work. In contrast to spillovers from competitors, spillovers from suppliers, customers and research institutions exert no effect. |
| Keywords: | Innovation, Spillover, Profitability |
| JEL: | L12 O31 O32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:6893&r=com |
| By: | Hussinger, Katrin |
| Abstract: | Mergers and acquisitions (M&As) constitute a disruption to the working environment of the inventive labor force of the acquired company. If inventors would respond with a decline of their patent productivity or departure from the firm this can be detrimental to the innovative process within the merged entity and can be contradictory to the aims of the firm acquisition. This paper provides empirical evidence on post-merger mobility and productivity of 673 inventors employed by European acquisition targets in the years 2000 and 2001. The empirical results show that 1.) the most productive and experienced individuals stay with the merged entity; 2.) inventors that left the acquired firm are less productive in post-merger years than those that stayed with the merged entity; 3.) M&As trigger inventor mobility, but do not lead to a decline in patent productivity if compared to a control group of inventors that have not been involved in a firm acquisition. |
| Keywords: | M&As, inventor mobility and productivity |
| JEL: | C24 G34 O32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:6898&r=com |
| By: | Decio Coviello; Mario Mariniello |
| Abstract: | Calls for tenders are the natural devices to inform bidders, thus to enlarge the pool of potential participants. We exploit discontinuities generated by the Italian Law on tender's publicity to identify the effect of enlarging the pool of potential participants on competition in public procurement auctions. We show that most of the effects of publicity are at regional and European level. Increasing tenders' publicity from local to regional determines an increase in the number of bidders by 50% and an extra reduction of 5% in the price paid by the contracting authority; increasing publicity from national to European has no effect on the number of bidders but it determines an extra reduction of 10% in the price paid by the contracting authority. No effect is observed when publicity is increased from regional to national. Finally, we relate measures of competition to ex-post duration of the works finding a negative correlation between duration and the number of bidders or the winning rebate. |
| Keywords: | Public Procurement Auctions, Publicity, Regression Discontinuity, Duration Analysis. |
| JEL: | D02 D44 C31 L11 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2008/04&r=com |
| By: | Casadesus-Masanell, Ramon (Harvard Business School); Ricart, Joan E. (IESE Business School) |
| Abstract: | In this article a business model is defined as the firm choices on policies, assets and governance structure of those policies and assets, together with their consequences, be them flexible or rigid. We also provide a way to represent such business models to highlight the dynamic loops and to facilitate understanding interaction with other business models. Furthermore, we develop some tests to evaluate the goodness of a business model both in isolation as well as in interaction with other business models of different organizations, be those competitors, complements, suppliers, partners, etc. |
| Keywords: | Business model; Interaction; Competitive Strategy; Competitive Dynamics; |
| Date: | 2007–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0713&r=com |
| By: | Shiko Maruyama (School of Economics, The University of New South Wales) |
| Abstract: | Should governments subsidize entry to promote competition? In general, theory models cannot determine whether entry under the free-entry condition is socially excessive, optimal, or insufficient. In this paper I propose an empirical framework to evaluate welfare consequences of policy intervention through entry in differentiated product markets, with a case study of the US Medicare HMO market. In endogenizing firms' entry-exit decision, a technical breakthrough is to explicitly incorporate firm heterogeneity by employing a sequential move game. This enables us to exploit detailed firm level data and makes policy simulations relevant. I find no evidence of socially excessive entry. The government may achieve higher social welfare by expanding the program. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2008-01&r=com |
| By: | Dijkgraaf, E. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Gradus, R.H.J.M. |
| Abstract: | For the refuse collection market, it is well-known that concentration increases prices and offsets the advantage of contracting out. The presence of competing public firms might be essential to ensure fair competition. In this paper we show that the increasing competition by public firms deceases prices and can be essential. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:vuarem:2007-19&r=com |
| By: | O. DE JONGHE; R. VANDER VENNET |
| Abstract: | This paper investigates how stock market investors perceive the impact of market structure and efficiency on the long-run performance potential of European banks. To that end, a modified Tobin’s Q ratio is introduced as a measure of bank franchise value. This measure is applied to discriminate between the Market Structure and Efficient-Structure hypotheses in a coherent forward-looking framework, in which differences in banks’ horizontal and vertical differentiation strategies are controlled for. The results show that banks with better management or production technologies possess a long-run competitive advantage. In addition, bank market concentration does not affect all banks equally. Only the banks with a large market share in a concentrated market are able to generate non-competitive rents. The paper further documents that the forward-looking, long-run perspective and the noise adjustment of the performance measure overcome most of the drawbacks associated with testing these hypotheses in a multi-country set-up. Finally, notwithstanding the international expansion of bank activities, the harmonization of regulation and the macroeconomic convergence in the European Union (EU15), we still find that country-specific macroeconomic variables have a significant impact on bank performance. The findings indicate that there is a trade-off between competition and stability that should be taken into account when assessing mergers or acquisitions. |
| Keywords: | charter value, market power, efficiency, Tobin’s Q, stochastic frontier |
| JEL: | G21 G28 G32 L11 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:07/491&r=com |
| By: | Jean-Michel Glachant (ADIS - Analyse des Dynamiques Industrielles et Sociales - Université Paris Sud - Paris XI); Vincent Rious (SUPELEC-Campus Gif - SUPELEC) |
| Abstract: | In a “Weak institutional complementarity” type of institution building it is typically the less replaceable institutional characteristic which dictates the path of change for the institution as a whole. We will show it is exactly what explains the diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. Firstly we argue that transmission monopoly in competitive electricity markets has to be analysed within an industry modular frame. Transmission is a set of several modules which have to be distinguished and separated in any design analysis and comparison. At least three modules make the core of transmission design: 1° the short run management of network externality; 2° the short run management of cross border trade; and 3° the long run management of network investment. Second in a new-institutional economics perspective we say that 1°monopoly design in a competitive policy cannot handle these three modules irrespective of the “institutional” definition and allocation of property rights on transmission; while 2°definition and allocation of property rights on transmission cannot ignore the existing electrical industry and transmission network structure: they basically have to complement each other. Third we apply this frame to compare PJM (USA) and NGC (UK) and we show it remarkably illuminates the reality. |
| Keywords: | TSO; weak institutional complementarity; modular analysis |
| Date: | 2007–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:hal-00217811_v1&r=com |
| By: | Joao Macieira |
| Abstract: | This paper proposes and estimates a dynamic structural model of innovation in the super- computer industry to evaluate the dependence of technological innovation on market structure. The model has two key features. First, it allows for technological leapfrogging while controlling for multiproduct ?rm pro?ts. Second, it uses the inclusive value of Nevo and Rossi (2007) to de- ?ne quality adjustment, which controls for ?rm entry, exit, product introduction and scrappage without modeling these decisions explicitly. Model estimates facilitate counterfactual compar- isons of how the maximal computing speed evolution di?ers under di?erent market structures. Consistent with the importance of a "selection e?ect" (Aghion et al, 2001, 2005), increased levels of competition are associated with a higher rates of innovation and increased welfare. However, the marginal increase in welfare is decreasing in the number of competitors. |
| Keywords: | Dynamic oligopoly, innovation, technological frontier, product quality, simulation estimation, supercomputers. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:vpi:wpaper:e07-10&r=com |
| By: | Roberto Fontana (Department of Economics, University of Pavia and CESPRI - Bocconi University, Milan, Italy.); Lionel Nesta (Observatoire Fran»cais des Conjonctures Economiques, D¶epartement de Recherche sur l'Innovation et la Concurrence, Valbonne, France.) |
| Abstract: | We investigate the relationship between product innovation and firm survival for a sample of 121 firms in a high-tech industry. We find that location near the technological frontier is an important determinant of fim survival. Firms located near the frontier are also more likely to be acquired than to exit by failure if they cannot survive. This suggests that product location in the technology space acts as a signal of firm quality. Possessing a substantial stock of intangible capital, on the other hand, determines neither exit via failure nor exit via acquisition, although it increases the probability of surviving. |
| Keywords: | Product innovation, survival, high-tech industry |
| JEL: | L25 L63 O32 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cri:cespri:wp208&r=com |
| By: | Rajneesh Narula (Department of Economics, University of Reading Business School); Grazia D. Santangelo (Facoltà di Scienze Politiche, Università degli Studi di Catania) |
| Abstract: | This paper shows empirically that in an intra-industry oligopolistic scenario the location of a firm’s innovative activities plays an important role in determining its partner selection in R&D alliances. Such a role is mainly attributed to a strategic use of R&D alliances as a means to limit knowledge flows and protect competences, rather than to promote knowledge flows. By drawing on a novel dataset matching alliances and patent data for the European ICT industry, the econometric analysis shows that partners’ prior co-location (at both national and sub-national regional level), previous ties and technological overlap matter in the choice of partner, while common nationality has a negative impact on alliance formation. |
| Keywords: | Alliances, R&D location, strategy, co-location, knowledge flows |
| JEL: | D23 F23 O18 O32 R3 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2007-43&r=com |