nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒02‒16
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Market Segmentation: The Role of Opaque Travel Agencies By Dmitry Shapiro; Xianwen Shi
  2. MARKET SEGMENTATION PRACTICES OF RETAIL CROP INPUT FIRMS By Jay Akridge; Mike Boehlje; Allan Gray; Aaron Reimer
  3. Choice, Price Competition and Complexity in Markets for Health Insurance By Richard Frank; Karine Lamiraud
  4. Reference Pricing Versus Co-Payment in the Pharmaceutical Industry: Price, Quality and Market Coverage By Marisa Miraldo
  5. Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship By William Kerr; Ramana Nanda
  6. Price, quality and welfare consequences of alternative club objectives in a professional sport league By Paul Madden
  7. Buyer Power through Producer's Differentiation By Claire Chambolle; Sofia Villas-Boas
  8. Equilibrium Configurations of Distribution Channels in Bilaterally Oligopolistic Industries By Igor Muraviev
  9. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas-Ruiz
  10. What Affects MFP in the Long-Run? Evidence from Canadian Industries By Danny Leung; Yi Zheng
  11. Productive Efficiency and Contestable Markets By Jean-Pierre Ponssard
  12. Collective Reputation and Market Structure: Regulating the Quality vs Quantity Trade-of By Pierre Fleckinger
  13. Excess liquidity, oligopolistic loan markets and monetary policy in LDCs By Tarron Khemraj
  14. Evaluating the Effects of Mergers and Acquisitions on Employees: Evidence from Matched Employer-Employee Data By Donald Siegel; Kenneth L. Simons

  1. By: Dmitry Shapiro; Xianwen Shi
    Abstract: This paper investigates the role of discount travel agencies such as Priceline and Hotwire in the market segmentation of the hotel and airline industries. These agencies conceal important characteristics of the offered services, such as hotel locations or flight schedules. We explicitly model this opaque feature and show that it enables service providers to price discriminate between those customers who are sensitive to service characteristics and those who are not. Service providers can profit from such discrimination despite the fact that the opaque feature virtually erases product differentiation and thus intensifies competition. The reason is that the intensified competition for less sensitive customers enables service providers to commit to a higher price for more sensitive customers, which leads to higher profits overall. This explains why airlines or hotels are willing to lose the advantage of product differentiation and offer services through discount travel agencies.
    Keywords: market segmentation, opaque travel agency, separation equilibrium, price discrimination
    JEL: D43 D82 L11 M31
    Date: 2008–02–05
  2. By: Jay Akridge; Mike Boehlje; Allan Gray; Aaron Reimer (Department of Agricultural Economics, College of Agriculture, Purdue University)
    Abstract: While market segmentation and the associated idea of target marketing are not new, there are questions about how the strategy of market segmentation and target marketing is being used in retail agribusiness firms. Previous research has demonstrated that distinct groups of farmers/customers exist (Alexander). However, retail crop input firms tend to be of modest size and are geographically bound. Both lack of resources and confinement to a specific geographic market present challenges for successful implementation of a market segmentation/target marketing strategy (Stolp). In this study, market segmentation/target marketing practices were explored in two types of crop input retailers: independently owned and operated firms (9 firms) and agricultural cooperatives (11 firms). A number of questions related to market segmentation/target marketing strategy were assessed via a web-based survey and telephone interviews. Referencing Best's seven-step framework, market segmentation is compared and contrasted by firm type; gaps in market segmentation strategy execution are identified; and challenges to implementing a market segmentation strategy are considered. Results show that market segmentation/target marketing was employed by 85% of the crop input retailers in the sample. Key gaps identified in market segmentation strategy execution include measuring market segment attractiveness; evaluating market segment profitability; developing a product-price positioning strategy for a tailored offering; expanding the positioning strategy to include promotional and sales elements of the marketing-mix; and evaluating the progress/success with each target market segment. Addressing these key gaps will aid industry professionals as they work to serve the needs of a continuously evolving farmer/customer base.
    Keywords: market segmentation, target marketing, crop inputs, distribution channel, retailer
    Date: 2007
  3. By: Richard Frank; Karine Lamiraud
    Abstract: The United States and other nations rely on consumer choice and price competition among competing health plans to allocate resources in the health sector. A great deal of research has examined the efficiency consequences of adverse selection in health insurance markets, less attention has been devoted to other aspects of consumer choice. The nation of Switzerland offers a unique opportunity to study price competition in health insurance markets. Switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition. We examine consumer responses to price differences in local markets and the degree of price variation in local markets. Using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grow their willingness to switch plans given a set of price dispersion differences declines allowing large price differences for relatively homogeneous products to persist. We consider explanations for this phenomenon from economics and psychology.
    JEL: I11
    Date: 2008–02
  4. By: Marisa Miraldo (Centre for Health Economics, University of York)
    Abstract: Within a horizontally differentiation model, we analyse the relative effects of reference pricing and copayment reimbursement on firms pricing and quality strategies as well as on market coverage under different market structures: competitive market, local monopolies and exogenous full market coverage. Results allow us to shed some light on the welfare and total drug expenditure implications of different drug reimbursement policies.
    Keywords: Reference Pricing; Co-payment; Product Differentiation
    JEL: D40 I11 O33
    Date: 2007–04
  5. By: William Kerr; Ramana Nanda
    Abstract: We study how US branch-banking deregulations affected the entry and exit of firms in the non-financial sector using establishment-level data from the US Census Bureau’s Longitudinal Business Database. The comprehensive micro-data allow us to study how the entry rate, the distribution of entry sizes, and survival rates for firms responded to changes in banking competition. We also distinguish the relative effect of the policy reforms on the entry of startups versus facility expansions by existing firms. We find that the deregulations reduced financing constraints, particularly among small startups, and improved ex ante allocative efficiency across the entire firm-size distribution. However, the US deregulations also led to a dramatic increase in “churning” at the lower end of the size distribution, where new startups fail within the first three years following entry. This churning emphasizes a new mechanism through which financial sector reforms impact product markets. It is not exclusively better ex ante allocation of capital to qualified projects that causes creative destruction; rather banking deregulations can also “democratize” entry by allowing many more startups to be founded. The vast majority of these new entrants fail along the way, but a few survive ex post to displace incumbents.
    Keywords: banking, financial constraints, entrepreneurship, entry, exit, creative destruction, growth, deregulation
    JEL: E44 G21 L26 L43 M13
    Date: 2007–12
  6. By: Paul Madden
    Date: 2008
  7. By: Claire Chambolle (PREG - Pole de recherche en économie et gestion - CNRS : UMR7176 - Polytechnique - X); Sofia Villas-Boas (UC Berkeley -)
    Abstract: Cet article montre que des distributeurs peuvent décider d’offrir des produits différenciés, non pas pour relâcher la concurrence horizontale, mais pour accroître leur pouvoir d’achat vis-à-vis de leur fournisseur. Nous analysons un modèle simple où deux producteurs offrent des produits différenciés en qualité à deux distributeurs en activité sur des marches séparés qui ne peuvent offrir qu’un seul produit aux consommateurs. A la première étape du jeu, les distributeurs choisissent quel produit mettre en rayon, puis chaque distributeur et son fournisseur négocient sur un contrat de tarif binôme. Enfin, les distributeurs choisissent leur quantités. Lorsque les coûts de production sont convexes, la part des profits joint revenant au distributeur est plus élevée lorsque les distributeurs choisissent de se différencier. L’origine de la différenciation peut donc être uniquement liée au désir des distributeurs d'accroître leur pouvoir d’achat: via la différenciation des fournisseurs, le distributeur obtient une plus large part de profits joints plus faibles. Ce résultat est robuste lorsque l’on introduit de la concurrence en aval. Nous mettons en évidence les conséquences de cette stratégie de différenciation sur le surplus des consommateurs.
    Keywords: Puissance d'achat;Gamme de produit;Différentiation des produits
    Date: 2007
  8. By: Igor Muraviev (PREG - Pole de recherche en économie et gestion - CNRS : UMR7176 - Polytechnique - X)
    Abstract: NA
    Date: 2007
  9. By: Omar Licandro; Antonio Navas-Ruiz
    Abstract: The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a two-country endogenous growth model, both countries producing the same set of goods, with firm speciffic R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same setof goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms' market power.
    Date: 2008–01
  10. By: Danny Leung; Yi Zheng
    Abstract: In this paper we explore variables that may have an impact on multifactor productivity (MFP) in the long-run using the KLEMS database for Canada. We estimate a dynamic heterogeneous panel error-correction model of twelve 2-digit level industries. Variables investigated include ICT capital, outsourcing, competition, trade openness, public infrastructure, and R&D. Results suggest that over the 1976 - 2003 period ICT capital services, outsourcing and trade all had a positive impact on the level of industry MFP. The speed of adjustment varies significantly by industry.
    Keywords: Productivity
    JEL: C23 D24 O30
    Date: 2008
  11. By: Jean-Pierre Ponssard (PREG - Pole de recherche en économie et gestion - CNRS : UMR7176 - Polytechnique - X)
    Abstract: NA
    Date: 2007
  12. By: Pierre Fleckinger (PREG - Pole de recherche en économie et gestion - CNRS : UMR7176 - Polytechnique - X, LEEP - Laboratoire d'econometrie de l'école polytechnique - CNRS : UMR7657 - Polytechnique - X)
    Abstract: Les marchés de biens d'expérience ont souvent un fonctionnement intermédiaire entre l'échec de marché et la construction de réputations individuelles. Ce papier explore la situation dans laquelle les consommateurs connaissent la qualité moyenne proposée par un ensemble de producteurs, mais pas la qualité d'un produit donné. La première question est de comprendre comment un tel signal agrégé sur la qualité structure la concurrence quand les variables stratégiques des firmes sont la quantité et la qualité. En particulier, le surplus social à l'équilibre est une fonction convexe du nombre de firmes du fait des quantités croissantes mais de la qualité décroissante. Une deuxième question est celle de la régulation. Il est possible à l'aide d'instruments de régulation de réduire les quantités produites pour obtenir une qualité supérieure. Parmi les politiques utilisant un instrument, la régulation de l'entrée et la régulation en quantité sont plus efficaces que les outils basés sur le contrôle des prix. Ces résultats donnent des indications pour la régulation par les professionnels sur certains marchés de service et les syndicats de producteurs sur les marchés agricoles.
    Date: 2007
  13. By: Tarron Khemraj
    Abstract: Evidence about commercial banks’ liquidity preference says the following about the loan market in LDCs: (i) the loan interest rate is a minimum mark-up rate; (ii) the loan market is characterized by oligopoly power; and (iii) indirect monetary policy, a cornerstone of financial liberalization, can only be effective at very high interest rates that are likely to be deflationary. The minimum rate is a mark-up over an exogenous foreign interest rate, marginal transaction costs and a risk premium. The paper utilizes and extends the oligopoly model of the banking firm. A calibration exercise tends to replicate the observed stylized facts.
    Keywords: excess bank liquidity, oligopoly loan market, monetary policy
    JEL: O10 O16 E52 G21 L13
    Date: 2008–02
  14. By: Donald Siegel (Graduate School of Management, University of California, Riverside, Riverside, CA 92521, USA); Kenneth L. Simons (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: The unit of analysis in empirical studies of the employment and wage effects of mergers and acquisitions is typically the plant or firm. In contrast, the unit of observation in this study is the individual worker, which allows us to provide direct, systematic empirical evidence on the effects of different types of mergers and acquisitions on employees. Specifically, we analyze linked employer employee data for the entire population of Swedish workers and over 19,000 manufacturing plants for the period 1985-1998. For each worker, we have data on gender, age, national origin, level of education, type of education, location, industrial sector, annual earnings, as well as each employee’s complete work history both before and after a merger or acquisition. We can also identify whether the plant was involved in a full or partial acquisition or divestiture, as well as a related or unrelated acquisition. The empirical evidence suggests that employee outcomes are more favorable when only part of the company is bought or sold or when the firm engages in an unrelated acquisition.
    JEL: G34 J23 J31 C81
    Date: 2008–01

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