nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒02‒09
thirty-two papers chosen by
Russell Pittman
US Department of Justice

  1. Vertical foreclosure, a policy framework By Michiel Bijlsma; Viktoria Kocsis; Victoria Shestalova; Gijsbert Zwart
  2. How (not) to measure competition By Jan Boone; Jan van Ours; Henry van der Wiel
  3. Bilateral Information Sharing in Oligopoly By Sergio Currarini; Francesco Feri
  4. Pricing in a duopoly with a lead time advantage By Martinez de Albeniz, Victor
  5. Globalization and Innovation in Emerging Markets By Gorodnichenko, Yuriy; Svejnar, Jan; Terrell, Katherine
  6. Markets for information : of inefficient firewalls and efficient monopolies By Antonio Cabrales; Piero Gottardi
  7. Access Price Cap Mechanisms and Industry Structure with Information Acquisition By Francesca Stroffolini
  8. Why and how should innovative industries with high consumers’ switching costs be re-regulated? By Jackie Krafft; Evens Salies
  9. Optimal Collusion-Proof Auctions By Yeon-Koo Che; Jinwoo Kim
  10. Does Publicity Affect Competition? Evidence from Discontinuities in Public Procurement Auctions By Decio Coviello; Mario Mariniello
  11. Price Discrimination and Audience Composition in Advertising-Based Broadcasting By Roberto Roson
  12. Performance of the Dutch non-life insurance industry: competition, efficiency and focus By Jacob A. Bikker; Janko Gorter
  13. The Emergence of Information Sharing in Credit Markets By Martin Brown; Christian Zehnder
  14. Competing for shelf space By Martinez de Albeniz, Victor; Roels, Guillaume
  15. Grenzen des Wettbewerbs im Gesundheitswesen By Ingmar Kumpmann
  16. The Changing Effect of HMO Market Structure: An Analysis of Penetration, Concentration, and Ownership Between 1994-2005 By Yu-Chu Shen; Vivian Wu; Glenn Melnick
  17. Trust and Reciprocity in 2-node and 3-node Networks By Alessandra Cassar, ac; Mary Rigdon, mr
  18. The impact of quick response in inventory-based competition By Caro, Felipe; Martinez de Albeniz, Victor
  19. Market share and price in Dutch home care: market power or quality? By Ilaria Mosca; Marc Pomp; Victoria Shestalova
  20. Market power in an exhaustible resource market: The case of storable pollution permits By Matti Liski; Juan Pablo Montero
  21. Regulatory and Policy Implications of Emerging Technologies to Spectrum Management By PUJOL, Frédéric
  22. Creditor concentration: an empirical investigation By Ongena, Steven; Tümer-Alkan, Günseli; Westernhagen, Natalja von
  23. Emerging Technologies and Access to Spectrum Resources: the Case of Short-Range Systems By MINERVINI, Fulvio
  24. From strategic to price taking behavior By Leonidas Koutsougeras
  25. International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis By Giammario Impullitti
  26. Competition in the supply option market By Martinez de Albeniz, Victor; Simchi-Levi, David
  27. Firm Entry and Institutional Lock-in: An Organizational Ecology Analysis of the Global Fashion Design Industry By Rik Wenting; Koen Frenken
  28. Private Antitrust Enforcement in the Presence of Pre-Trial Bargaining By BOURJADE, Sylvain; REY, Patrick; SEABRIGHT, Paul
  29. Buyer Power and Intraband Coordination By MIKLOS-THAL, Jeanine; REY, Patrick; VERGÉ, Thibaud
  30. Can institutional forces create competitive advantage? An empirical examination of environmental innovation By Berrone, Pascual; Gelabert, Liliana; Fosfuri, Andrea; Gomez-Mejia, Luis R.
  31. Vertical Integration and Technology: Theory and Evidence By Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
  32. Oligopoly on a Salop circle with centre By Paul Madden; Mario Pezzino

  1. By: Michiel Bijlsma; Viktoria Kocsis; Victoria Shestalova; Gijsbert Zwart
    Abstract: Whenever you phone your mother, switch on the light, or buy health insurance you purchase a service or product from a chain of vertically related industries. Providers of these products or services need access to a telecommunications network, an electricity network or to health care services. In such industries, integration and exclusive contracts between vertically related firms may have important welfare enhancing effects, but can also deny or limit rivals’ access to input or customers, leading to foreclosure. Foreclosure can harm welfare if it reduces competition. This document provides policymakers with a framework to assess the potential for welfare reducing foreclosure of vertical integration and vertical restraints and describes possible remedies. The framework consists of four steps. Each step requires its own detailed analysis. First, market power should exist either upstream or downstream. Second, a theory of foreclosure should be formulated that explains why foreclosure is a profitable equilibrium strategy. Third, the existence and magnitude of potential welfare enhancing effects of the vertical restrains or vertical integration should be assessed. Fourth, suitable policies to address foreclosure should be found.
    Keywords: Vertical foreclosure; Competition policy; Network industries
    JEL: L13 L42 L51
    Date: 2008–01
  2. By: Jan Boone; Jan van Ours; Henry van der Wiel
    Abstract: We discuss and apply a new measure of competition: the elasticity of a firm’s profits with respect to its cost level. A higher value of this profit elasticity (PE) signals more intense competition. Using firm level data we compare PE with the most popular competition measures such as the price cost margin (PCM). We show that PE and PCM are highly correlated on average. However, PCM tends to misrepresent the development of competition over time in markets with few firms and high concentration, i.e. in markets with high relevance for competition policy and regulation. So, just when it is needed the most PCM fails whereas PE does not. From this, we conclude that PE is a more reliable measure of competition.
    Keywords: competition; profit elasticity; measures of competition; concentration; price cost margin; profits
    JEL: D43 L13
    Date: 2007–12
  3. By: Sergio Currarini (Department of Economics, University Of Venice Cà Foscari and School for Advanced Studies in Venice); Francesco Feri (University of Innsbruck)
    Abstract: We study the problem of information sharing in oligopoly, when sharing decisions are taken before the realization of private signals. Using the general model developed by Raith (1996), we show that if firms are allowed to make bilateral exclusive sharing agreements, then some degree of information sharing is consistent with equilibrium, and is a constant feature of equilibrium when the number of firms is not too small. Our result is to be contrasted with the traditional conclusion that no information is shared in common values situations with strategic substitutes - such as Cournot competition with demand shocks - when firms can only make industry-wide sharing contracts (e.g., a trade association).
    Keywords: Networks, Information sharing, oligopoly, networks, Bayesian equilibrium
    JEL: D43 D82 D85 L13
    Date: 2007
  4. By: Martinez de Albeniz, Victor (IESE Business School)
    Abstract: We analyze the price competition between two suppliers offering two different lead times and two different prices to a buyer. The buyer chooses its inventory replenishment policy in order to minimize its infinite-horizon average cost. In essence, the fast and expensive supplier is used only in emergencies, while the slow and cheap supplier receives the bulk of the orders. Thus, despite a higher price, the fast supplier is able to capture a part of the buyer's orders. We analyze the price competition between the asymmetric suppliers, where the market share of each supplier is derived from the buyer's inventory problem. We find equilibria that differ significantly from the Bertrand price-only competition. In particular, for some cost parameters, the fast supplier is able to charge a premium for faster delivery, and stay in business even with a higher production cost. We obtain in some cases closed-form formulas for the price difference in equilibrium. Hence, our results show that high cost suppliers may not be driven out of business if they can offer fast delivery.
    Keywords: offshoring; dual sourcing;
    Date: 2007–11–19
  5. By: Gorodnichenko, Yuriy (University of California, Berkeley); Svejnar, Jan (University of Michigan); Terrell, Katherine (University of Michigan)
    Abstract: Globalization brings opportunities and pressures for domestic firms in emerging market economies to innovate and improve their competitive position. Using recent data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms’ efforts to raise their capability (innovate) by upgrading their technology or their product/service (improving quality or developing a new one), taking into account firm heterogeneity. We find support for the prediction that competition has a negative effect on innovation, especially for firms further from the frontier, and that the supply chain of multinational enterprises and international trade are important channels for domestic firm innovation. We do not find support for the inverted U effect of competition on innovation. There is partial support for the hypothesis that firms in a more pro-business environment invest more in innovation and are more likely to display the inverted U relationship between competition and innovation.
    Keywords: competition, innovation, emerging markets, spillovers
    JEL: F23 O16
    Date: 2008–01
  6. By: Antonio Cabrales; Piero Gottardi
    Abstract: In this paper we build a formal model to study market environments where information is costly to acquire and is of use also to potential competitors. In such situations a market for information may form, where reports - of unverifiable quality - over the information acquired are sold. A complete characterization of the equilibria of the game is provided. We find that information is acquired when its costs are not too high and in that case it is also sold, though reports are typically noisy. Also, the market for information tends to be a monopoly, and there is typically inefficiency given by underinvestment in information acquisition. Regulatory interventions in the form of firewalls, limiting the access to the sale of information to third parties, uninterested in trading the underlying object, only make the inefficiency worse. On the other hand, efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked. The above findings hold when information has a prevalent horizontal differentiation component. When that is not the case, and the vertical differentiation element is more important, firewalls can in fact be beneficial.
    Keywords: Information sale, Cheap talk, Conflicts of interest, Information acquisition, Chinese walls, Market efficiency
    JEL: D83 C72 G14
    Date: 2008–01
  7. By: Francesca Stroffolini (University of Napoli “Federico II” and CSEF)
    Abstract: This paper considers a network industry characterized by an upstream natural monopoly with cost uncertainty, regulated through an access price mechanism, and an unregulated downstream market with Cournot competition. The upstream monopolist can acquire information on the upstream cost while the information acquisition is prohibitively costly for the regulator and downstream firms. The information acquisition is also unobservable. I investigate how the presence of costly and socially valuable information on the upstream cost affects the desirability of allowing the upstream monopolist to produce in the downstream market (integration) rather than excluding it (separation). I show that when the upstream monopolist is regulated only through an access price cap, the information acquisition problem provides an argument in favour of vertical integration. However, when the regulator also obliges the upstream monopolist to share her access profits with consumers, a bias emerges in favour of separation via the impact of the access-profit sharing plan on the upstream monopolist's incentives to transmit information to her rival in the downstream market. Classification-JEL, D82, D83, L5
    Keywords: access price cap mechanisms, integration, separation, information acquisition.
    Date: 2008–01–01
  8. By: Jackie Krafft (GREDEG - Groupe de recherche en Droit Economie Gestion - Université de Nice Sophia-Antipolis); Evens Salies (OFCE-DRIC - OFCE)
    Abstract: The existence of costs to consumers to switch between products is central to the process by which firms set prices. Their effect on the introduction and diffusion of innovative technologies is not by now well understood, however. This paper aims to study this effect based on evidence in the broadband Internet industry and to discuss the movement of deregulation implemented since the early 2000s in France, as well as the apparent emerging potential of re-regulation. We argue the presence of a cost to consumers to switch between technologies may impede the expected beneficial outcomes of self-regulation through competition in liberalised innovative industries as it has been implemented so far in several countries. We provide a measure of the cost to switch from ADSL to cable for retail consumers in France which supports the domination of the former technology. These results suggest that retail broadband Internet markets may need some sort of re-regulation, including new principles for competition policy, to avoid the unwanted effects of consumer switching costs.
    Date: 2008–02–05
  9. By: Yeon-Koo Che (Department of Economics, Columbia University); Jinwoo Kim (Yonsei University)
    Abstract: We study an optimal collusion-proof auction in an environment where subsets of bidders may collude not just on their bids but also on their participation. Despite their ability to collude on participation, informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power. The second-best auction ¿ i.e., the optimal auction in a collusion-free environment ¿ can be made collusion-proof, if at least one bidder is not collusive, or there are multiple bidding cartels, or the second-best outcome involves a nontrivial probability of the object not being sold. In case the second-best outcome is not weak collusion-proof implementable, we characterize an optimal collusion-proof auction. This auction involves nontrivial exclusion of collusive bidders ¿ i.e., the object is not sold to any collusive bidder with positive probability.
    Date: 2007
  10. By: Decio Coviello (EUI, CSEF and University of Salerno); Mario Mariniello (European University Institute)
    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: 2008–01–15
  11. By: Roberto Roson (Department of Economics, University Of Venice Cà Foscari)
    Abstract: Traditionally, media like TV and radio, but also the Internet, have been characterized by free access (by consumers having the necessary hardware), with services supported through advertising revenues. Profitability in these markets depends on the capability of attracting audience. Strategic choices, however, also depend on the relationship with the dual market for advertising services. In this paper, a model is introduced, which has two distinguishing features. First, the multidimensional nature of competition in media markets is acknowledged, through explicit modeling of vertical and horizontal differentiation. Second, the price of advertising depends on the expected audience composition, not simply on its magnitude. It also depends on the broadcasters' capability of effectively price-discriminate among advertising customers. It is found that market equilibria depend on a number of critical factors: the amount and type of price discrimination in advertising, the correlation between formats and audience composition, the relative profitability of the different market segments, and diseconomies of scale in program quality.
    Keywords: Advertising, Media Industries, Broadcasting, Price Discrimination, Television, Radio, Differentiation..
    JEL: L82 M37
    Date: 2007
  12. By: Jacob A. Bikker; Janko Gorter
    Abstract: This paper investigates competition in the Dutch non-life insurance industry indirectly by measuring scale economies and X-inefficiency, assuming that strong competition would force insurance firms to exploit unused scale economies and to push down inefficiencies. We observe substantial economies of scale (on average 11%) that are larger for smaller firms. Despite considerable consolidation in the industry over the last decade, scale economies have increased, as the optimal scale has outgrown the actual one. Comparing estimates across aggregation levels, we find that scale economies are smaller for groups and lines of business than they are for firms. Besides scale, focus and organizational form are important cost determinants as well: generally, specialized insurers have lower costs and face greater economies of scale. Estimates of thick frontier efficiency point to huge cost differences across firms and within lines of business. Overall, our results suggest that there is a lack of competitive pressure in the Dutch non-life insurance industry.
    Keywords: Non-life insurance, economies of scale, market structure, concentration, competition, X-efficiency, total cost function, aggregation: insurance groups, firms and lines of business
    JEL: D4 D61 G22 L1
    Date: 2008–01
  13. By: Martin Brown; Christian Zehnder
    Abstract: We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, because borrowers may exogenously switch locations. Lenders, however, are also engaged in spatial competition, and lose market power by sharing information with close competitors. Our results suggest that more asymmetric information in the credit market increases information sharing behavior significantly. Stronger competition between lenders reduces information sharing, but its impact seems to be only of second order importance.
    Keywords: Credit Market, Information Sharing, Spatial Competition, Adverse Selection
    JEL: C92 G21 D82
    Date: 2007–04
  14. By: Martinez de Albeniz, Victor (IESE Business School); Roels, Guillaume (UCLA Anderson School of Management)
    Abstract: This paper studies competition for shelf space in a multi-supplier retail point. We consider a retailer that seeks to allocate her shelf space to maximize her profit. Because products associated with larger profit margin are granted more shelf space, suppliers can offer the retailer financial incentives to obtain larger space allocations. We analyze the competitive dynamics arising from the scarcity of space, and show existence and uniqueness of equilibrium. We then demonstrate that the inefficiencies from decentralizing decision-making are limited to 6% with wholesale-price contracts, and that full coordination can be achieved with pay-to-stay fee contracts. We finally investigate how competition is distorted under the practice of category management.
    Keywords: Game theory; Supply chain competition; Price of Anarchy; Pricing; Supply contracts;
    Date: 2007–11–15
  15. By: Ingmar Kumpmann
    Abstract: Many health economists demand more competition in the health care system. They focus on the competition between sickness funds for insured and the competition between health care providers for contracts with sickness funds. But they neglect the competition between health care providers for patients which is crucial for medical quality. This third field of competition is in conflict with the two former fields. The empirical evidence concerning the effects of competition on cost and quality is also ambiguous. Thus the mere claim for “more competition” does not do justice to the high complexity of the health care system.
    Keywords: health care system, competition, sickness funds, free choice of medical practitioner
    JEL: I11 I18 D61
    Date: 2008–01
  16. By: Yu-Chu Shen; Vivian Wu; Glenn Melnick
    Abstract: We analyze the role of three aspects of HMO market structure -- HMO penetration, HMO plan concentration, and HMO for-profit share on explaining hospital cost and revenue growth during the HMO expansion period (1994-1999) and backlash period (2000-2005). We find that HMO penetration effects differ over time: a 10 percentage point increase in HMO enrollment leads to 2.5 percent reduction in cost and revenues in the expansion period but only 0.4-1 percent reduction in the backlash period. Furthermore, this HMO backlash effect can be attributed to HMO dis-enrollment as well as the changing nature of HMO product. We find that revenue increases at a slower rate (by about 5 percent) in markets with relatively concentrated HMO markets power and more competitive hospital markets. Finally, increased for-profit HMO presence is associated with smaller cost and revenue growth, and the effect differs between low and high penetration markets.
    JEL: I11
    Date: 2008–02
  17. By: Alessandra Cassar, ac; Mary Rigdon, mr
    Abstract: In this paper we focus on the interaction between exogenous network structure and bargaining behavior in a laboratory experiment. Our main question is how competition and cooperation interact in bargaining environments based on networked versions of the investment game. We focus on 3-node networked markets and vary the network structure to model competition upstream (multiple sellers paired with a monopsonistic buyer) and competition downstream (a monopolistic seller paired with multiple buyers). We describe two kinds of models of trust for such networked environments, absolute and relativized models, and use this structure to generate a general hypothesis about these environments: that information crowds in cooperation on the competitive side of the market. The experimental results support this hypothesis.
    Keywords: networks; trust; reciprocity; experiments; investment game
    JEL: L14 D00 C91
    Date: 2008–01–26
  18. By: Caro, Felipe (UCLA Anderson School of Management); Martinez de Albeniz, Victor (IESE Business School)
    Abstract: We propose a multi-period extension of the competitive newsvendor model of Lippman and McCardle (1997) to investigate the impact of quick response under competition. For this purpose, we consider two retailers that compete in terms of inventory: customers that face a stockout at their first-choice store will look for the product at the other store. Consequently, the total demand that each retailer faces depends on the competitor's inventory level. We allow for asymmetric reordering capabilities, and we are particularly interested in the case when one of the firms has a lower ordering cost but can only produce at the beginning of the selling season, whereas the second firm has higher costs but can replenish stock in a quick response manner taking advantage of any incremental knowledge about demand (if it is available). We visualize this problem as the competition between a traditional make-to-stock retailer that builds up inventory before the season starts versus a retailer with a responsive supply chain that can react to early demand information. We provide conditions for this game to have a unique pure-strategy subgame-perfect equilibrium, which then allows us to perform numerical comparative statics. Our results confirm in a competitive setting the intuitive fact that quick response is more beneficial when demand uncertainty is higher, or exhibits a higher correlation over time. Finally, we find that part of the competitive advantage from quick response arises from the asymmetry in response capabilities.
    Keywords: quick response; fast fashion; inventory competition;
    Date: 2007–11–21
  19. By: Ilaria Mosca; Marc Pomp; Victoria Shestalova
    Abstract: A change of legislation in 2004 of the Dutch Exceptional Medical Expenses Act (EMEA) allowed for more competition among suppliers of home care. The new law made it possible for the 32 regional healthcare purchasing agencies to contract suppliers selectively and to negotiate over prices and quality. Since, at least in some regions, one or two providers dominate the market, there are concerns about the effect of providers’ market power on the pricing of home care services. This paper tries to assess whether these concerns are justified. Using complete data on contracted prices and quantities for 2004-2006, we find that, indeed, providers with a larger market share are able to contract at a higher price. We also find significant differences in contracted prices for some healthcare purchasing agencies, which points towards differences in their regional situations and/or policies. It is conceivable that both differences in market share and differences in price are driven by unobserved differences in quality. However, our analysis based on quality data reported in a consumer survey does not support this explanation.
    Keywords: market structure; bargaining; healthcare
    JEL: D4 I18
    Date: 2007–12
  20. By: Matti Liski; Juan Pablo Montero (Instituto de Economía. Pontificia Universidad Católica de Chile.)
    Abstract: Motivated by the structure of existing pollution permit markets, we study the equilibrium path that results from allocating an initial stock of storable permits to a large polluting agent and a competitive fringe. A large agent selling permits in the market exercises market power no differently than a large supplier of an exhaustible resource. However, whenever the large agent’s endowment falls short of its efficient endowment –allocation profile that would exactly cover its emissions along the perfectly competitive path– the market power problem disappears, much like in a durable-good monopoly. We illustrate our theory with two applications: the carbon market that may eventually develop under the Kyoto Protocol and beyond and the US sulfur market.
    Keywords: Exhaustible resources, market power, pollution markets, durable-good monopoly
    JEL: L51 Q28
    Date: 2008
  21. By: PUJOL, Frédéric
    Abstract: This paper provides an overview of the policy implications of technological developments, and how these technologies can accommodate an increased level of market competition. It is based on the work carried out in the SPORT VIEWS (Spectrum Policies and Radio Technologies Viable In Emerging Wireless Societies) research project for the European Commission (FP6)
    Keywords: spectrum; new radio technologies; UWB; SDR; cognitive radio; Telecommunications; regulation; Networks; Interconnection
    JEL: L52
    Date: 2007–09
  22. By: Ongena, Steven; Tümer-Alkan, Günseli; Westernhagen, Natalja von
    Abstract: Most of the literature addressing multiple banking assumes equal financing shares. However, unequal, concentrated or asymmetric bank borrowing is widespread. This paper investigates the determinants of creditor concentration for German firms using a comprehensive bank-firm level dataset for the time period between 1993 and 2003. We document that lending is very often concentrated and, consequently, that relationship lending is important, not only for the small firms but also for the larger firms in our sample. However, we also find that risky, illiquid, large and leveraged firms spread their borrowing more evenly between multiple lenders. On the other hand, the degree of concentration increases with the profitability of the relationship lender. Relationship lending may spur financing provided by other banks, especially if the relationship lender is a public sector bank and if the other banks are large or do not have to tie up additional funds in capital.
    Keywords: bank relationships, asymmetric financing, banking competition
    JEL: G21 G32 G33
    Date: 2007
  23. By: MINERVINI, Fulvio
    Abstract: Traditional regulatory arrangements have constrained access to radio frequency spectrum. This has resulted in artificial scarcity of spectrum. The paper addresses the issue of whether technological developments in short-range systems (e.g. cognitive radios and ultra wideband) might promote access to spectrum - possibly using market mechanisms such as trading - and reduce spectrum shortages.
    Keywords: spectrum policy; spectrum access; emerging spectrum-using technology; Telecommunications; regulation; infrastructure
    JEL: L96
    Date: 2007–09
  24. By: Leonidas Koutsougeras
    Date: 2007
  25. By: Giammario Impullitti
    Abstract: The geographical distribution of R&D investment changes dramatically in the 1970s and 1980s. In the early 1970s U.S. firms are the uncontested world leaders in R&D investment in most manufacturing sectors. Later, led by Japan and Europe, foreign firms start challenging American R&D leadership in many sectors of the economy. In this period of increasing competition we also observe a substantial increase in the U.S. R&D subsidy. In a version of the multi-country quality ladder growth model I study the effects of foreign R&D competition on domestic welfare and on the optimal R&D subsidy. I build a new empirical index of international R&D rivalry that can be used to perform quantitative analysis in this type of frameworks. In a calibrated version of the model I focus on the period 1979-1991 and perform the following quantitative exercises: first, I evaluate the quantitative effects of the observed increase in foreign R&D competition on U.S. welfare. I find that the positive growth effect and the negative business-stealing effect of foreign competition on U.S. welfare substantially balance each other, and the overall welfare effect of competition is negligible - less then 1 percent of per-capita consumption. Moreover, using estimates of the effective U.S. R&D subsidy rate, I compute the distance from optimality of the observed subsidy at each level of competition. I find that international competition increases the optimal subsidy and that, surprisingly, the U.S. subsidy observed in the data is fairly close to the optimal subsidy.
    Keywords: international competition, R&D-driven growth theory, strategic R&D policy, international trade and growth
    JEL: F12 F13 O41
    Date: 2008
  26. By: Martinez de Albeniz, Victor (IESE Business School); Simchi-Levi, David (MIT)
    Abstract: This paper develops a multi-attribute competition model for procurement of short life cycle products. In such an environment, the buyer installs dedicated production capacity at the suppliers before the demand is realized. Final production orders are decided after demand materializes. Of course, the buyer is reluctant to bear all the capacity and inventory risk, and thus signs flexible contracts with several suppliers. We model the suppliers' offers as option contracts, where each supplier charges a reservation price per unit of capacity, and an execution price per unit of delivered supply. These two parameters illustrate the trade-off between total price and flexibility of the contract, and are both important to the buyer. We model the interaction between the suppliers and the buyer as a game in which the suppliers are the leaders and the buyer is the follower. Specifically, suppliers compete to provide supply capacity to the buyer and the buyer optimizes its expected profit by selecting one or more suppliers. We characterize the suppliers' equilibria in pure strategies for a class of customer demand distributions. In particular, we show that this type of interaction gives rise to cluster competition. That is, in equilibrium, suppliers tend to be clustered in small groups of two or three suppliers each, such that within the same group all suppliers use similar technologies and offer the same type of contract. Finally, we show that in equilibrium, the supply chain inefficiencies, i.e., the loss of profit due to competition, are in general at most 25% of the profit of a centralized supply chain, for a wide class of demand distributions.
    Keywords: supplier portfolio; supplier competition;
    Date: 2007–11–17
  27. By: Rik Wenting; Koen Frenken
    Abstract: Few industries are more concentrated than the global fashion industry. We analyse the geography and evolution of the ready-to-wear fashion design industry by looking at the yearly entry rates following an organizational ecology approach. In contrast to earlier studies on manufacturing industries, we find that legitimation effects are local and competition effects are global. This result points to the rapid turnover of ideas in fashion on the one hand and the global demand for fashion apparel on the other hand. We attribute the decline of Paris in the post-war period to 'institutional lock-in', which prevented a ready-to-wear cluster to emerge as vested interested of haute couture designers were threatened. An extended organizational ecology model provides empirical support for this claim.
    Keywords: Organizational ecology, fashion industry, creative industries, clusters, institutional lock-in
    Date: 2008–01
  28. By: BOURJADE, Sylvain; REY, Patrick; SEABRIGHT, Paul
    Date: 2007–07
  29. By: MIKLOS-THAL, Jeanine; REY, Patrick; VERGÉ, Thibaud
    JEL: L14 L42
    Date: 2008–01
  30. By: Berrone, Pascual (IESE Business School); Gelabert, Liliana (Universidad Carlos III); Fosfuri, Andrea (Universidad Carlos III); Gomez-Mejia, Luis R. (Arizona State University)
    Abstract: We examine institutional pressures as antecedents of environmental innovation. Drawing on institutional theory and a resource-based view of the firm, we argue that regulatory and normative forces influence companies' propensity to innovate in environment-related projects. Furthermore, we suggest that this relationship is contingent on the availability and specificity of the companies' resources. These relationships were tested using environmental patents and citations of 340 publicly-traded companies from polluting industries in the U.S. Results suggest that institutional pressures can be a source of competitive advantage, and regulatory forces are becoming more strongly associated with environmental innovations as the intensity of companies' R&D activities increase.
    Keywords: environmental innovation; institutional theory; resource-based view;
    Date: 2007–11–21
  31. By: Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
    Abstract: This paper investigates the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both these effects are stronger when the supplying industry accounts for a large fraction of the producer’s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm and industry-level characteristics.
    Keywords: Hold-up, incomplete contracts, internal organization of the firm, investment, residual rights of control, R&D, technology, UK manufacturing, vertical integration.
    JEL: L22 L23 L24 L60
    Date: 2007–12
  32. By: Paul Madden; Mario Pezzino
    Date: 2007

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