nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒05‒24
seven papers chosen by
Russell Pittman
US Department of Justice

  1. Upfront Payments and Listing Decisions By Pio Baake; Vanessa von Schlippenbach
  2. Profit Raising Entry By Arijit Mukherjee; Laixun Zhao
  3. Excessive entry in a bilateral oligopoly By Arijit Mukherjee
  4. Regulatory design under asymmetric information about demand By Paula Sarmento; António Brandão
  5. Exposure Order Effects and Advertising Competition By Oksana Loginova
  6. Environmental Regulation as a Coordination Device for the Introduction of a Green Product: The Porter’s Hypothesis Revisited By Philippe Barla; Christos Constantatos; Markus Herrmann
  7. Firms in Scottish High Technology Clusters: software, life sciences, microelectronics, optoelectronics and digital media – preliminary evidence and analysis on firm size, growth and optimality By Gavin C. Reid; Vandana Ujjual

  1. By: Pio Baake; Vanessa von Schlippenbach
    Abstract: We analyze the listing decisions of a retailer who may ask her suppliers to make upfront payments in order to be listed. We consider a sequential game with upfront payments being negotiated before short-term delivery contracts. We show that the retailer is more likely to use upfront payments the higher her bargaining power and the higher the number of potential suppliers. Upfront payments tend to lower the number of products offered by the retailer when the products are rather close substitutes. However, upfront payments can increase social welfare if they ameliorate inefficient listing decisions implied by short-term contracts only.
    Keywords: Buyer power, upfront payments, retailing
    JEL: L14 L42
    Date: 2008
  2. By: Arijit Mukherjee; Laixun Zhao
    Abstract: Common wisdom suggests that entry reduces profits of the incumbent firms. On the contrary, we show that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, entry may benefit the incumbents who are relatively cost efficient while it always hurts the cost inefficient incumbents. However, the outputs of all incumbents may be higher under entry.
    Keywords: Entry; Profit; Stackelberg Competition
  3. By: Arijit Mukherjee
    Abstract: In a bilateral oligopoly, Ghosh and Morita (‘Social desirability of free entry: a bilateral oligopoly analysis, 2007, IJIO) show that entry is always socially insufficient if the upstream agents have sufficiently strong bargaining power. We show that this conclusion is very much dependent on the use of “efficient bargaining” model in their analysis. Using a “right-to-manage” model, we show that, even if the upstream agents have full bargaining power, entry is excessive in a bilateral oligopoly if the cost of entry is not very high. Hence, whether the anti-competitive entry regulation is justified under bilateral oligopoly depends on the bargaining structure between the upstream and the downstream agents.
    Keywords: Bilateral oligopoly; Excessive entry; Free entry; Insufficient entry
  4. By: Paula Sarmento (CETE and Faculty of Economics, University of Porto); António Brandão (CETE and Faculty of Economics, University of Porto)
    Abstract: In this paper we compare the costs of two regulatory policies about the entry of new firms. We consider an incumbent firm that has more information about the market demand than the regulator. Then, the incumbent firm can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator design a mechanism to motivate the incumbent firm to price truthfully. We conclude that, for enough high values of the probability of low demand, the welfare is higher with the second (more active) regulatory policy.
    Keywords: asymmetric information, entry regulation, signalling, adverse selection
    JEL: C73 D82 L13 L51
    Date: 2008–05
  5. By: Oksana Loginova (Department of Economics, University of Missouri-Columbia)
    Abstract: This paper applies the theories of exposure order effects, developed in the psychology literature, to an industrial organization model to explore their role in advertising competition. There are two firms and infinitely many identical consumers. The firms produce a homogeneous product and distribute their brands through a common retailer. Consumers randomly arrive at the retailer and buy their most preferred brands. The order in which a consumer sees the advertising messages affects his brand preferences. Under the primacy effect the consumer prefers the brand he first saw advertised, under the recency -- the last encountered brand. The equilibrium of the advertising game is characterized separately under the primacy and the recency effects. In the first setting all consumers are initially unaware of the product existence. The equilibrium advertising intensities, remarkably, do not depend on the type of exposure order effect. In the other two settings some consumers have already formed their brand preferences. The primacy and the recency effects give rise to different equilibrium outcomes.
    Keywords: Advertising Order Effects, Primacy, Recency
    JEL: C73 D11 D43 L13 M37
    Date: 2008–05–10
  6. By: Philippe Barla (Department of Economics, Universite Laval); Christos Constantatos (Department of Economics, University of Macedonia); Markus Herrmann (Department of Economics, Universite Laval)
    Abstract: According to Porter’s hypothesis, environmental regulation increases the regulated firms’ profits. However, if a “greener” strategy is more profitable why does it need regulatory intervention in order to be implemented? Let a greener product increase the adopter’s marginal cost while providing no additional benefits during the first period. In the second period, when the product's environmental attributes become known and appreciated by consumers, the adopter enjoys higher demand. By adopting the green product alone, a firm loses profits in the first period due to a) its increased costs, and b) its reduced market share; in the second period, it enjoys additional profits due to c) its increased quality, and d) its increased market share. If both firms adopt the green product market shares remain unaffected, therefore b) and d) disappear. While simultaneously adopting the green product can be profitable for both firms, for a single firm to pioneer adoption may not be so. Environmental regulation acts, therefore, as a co-ordination device reducing market inertia. By inducing both firms to act simultaneously it allows them to pass from one Nash equilibrium to another one with higher profits.
    Keywords: Porter’s hypothesis, environmental regulation, differentiated products, coordination
    JEL: Q20 Q28 L13 L50
    Date: 2008–05
  7. By: Gavin C. Reid; Vandana Ujjual
    Abstract: This paper reports on new primary source evidence and analysis on high technology clusters in Scotland. It focuses on the following sectors: software, life sciences, microelectronics, optoelectronics, and digital media. Evidence on a postal and e-mailed questionnaire is presented and discussed under the headings of: performance, resources, collaboration & cooperation, embeddedness, and innovation. The sampled firms are characterised as being small (viz. micro-firms and SMEs), knowledge intensive (all graduate staff), research intensive (average spend on R&D three times turnover), and internationalised (mainly selling to markets beyond Europe). Preliminary statistical evidence is presented on Gibrat’s Law (independence of growth and size) and the Schumpeterian Hypothesis (scale economies in R&D). Estimates suggest a short-run equilibrium size of just 100 employees, but a long-run equilibrium size of 1000 employees. Further, to achieve the Schumpeterian effect (of marked scale economies in R&D), estimates suggest that firms have to grow to very much larger sizes of beyond 3,000 employees. We argue that the principal way of achieving the latter scale may need to be by takeovers and mergers, rather than by internally driven growth
    Keywords: High technology, Scottish firms, Gibrat’s Law, the Schumpeterian Hypothesis.
    JEL: O18 O31 O34 O38
    Date: 2008–05

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