nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒05‒31
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Asymmetric Cartels - a Theory of Ring Leaders By Ganslandt, Mattias; Persson, Lars; Vasconcelos, Helder
  2. On The Stability of Research Joint Ventures: Implications for Collusion By Tomaso Duso,; Enrico Pennings; Jo Seldeslachts
  3. Bertrand Competition in Markets with Network Effects and Switching Costs By Irina Suleymanova; Christian Wey
  4. On the (Mis-) Alignment of Consumer and Social Welfare in Markets with Network Effects By Irina Suleymanova; Christian Wey
  5. Is Google the next Microsoft? Competition, Welfare and Regulation in Internet Search By Pollock, Rufus
  6. Multimarket Contact in Pharmaceutical Markets By Javier Coronado; Sergi Jiménez Martín; Pedro L. Marín
  7. Pumping Water to Compete in Electricity Markets By CRAMPES, Claude; MOREAUX, Michel
  8. Competition and the Organisation of the Clearing and Settlement Industry By Patrick Van Cayseele
  9. Regulation of NGN: Structural Separation, Access Regulation, or No Regulation at All? By Kirsch, Fabian; Von Hirschhausen, Christian
  10. The Economics of Next Generation Access Networks and Regulatory Governance: Towards Geographic Patterns of Regulation By Amendola, Giovanni Battista; Pupillo, Lorenzo Maria
  11. Regulatory Approaches to NGNs: An International Comparison By Marcus, J. Scott; Elixmann, Dieter
  12. NGA, IP-Interconnection and their Impact on Business Models and Competition By Reichl, Wolfgang; Ruhle, Ernst-Olav
  13. Live or let die : intra-sectoral lobbying on entry By Vincent Rebeyrol; Julien Vauday
  14. Product Market Deregulation and the U.S. Employment Miracle By Ebell, Monique; Haefke, Christian

  1. By: Ganslandt, Mattias; Persson, Lars; Vasconcelos, Helder
    Abstract: Many convicted cartels have a leader which is substantially larger than its rivals. In a setting where firms face indivisible costs of collusion, we show that: (i) firms may have an incentive to merge so as to create asymmetric market structures since this enables the merged firm to cover the indivisible cost associated with cartel leadership; and (ii) forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion. Thus, these results have implications for the practice of the current EU and US merger policies.
    Keywords: Cartels; Collusion; Cost Asymmetries; Merger Policy; Ring Leader
    JEL: D43 L41
    Date: 2008–05
  2. By: Tomaso Duso,; Enrico Pennings; Jo Seldeslachts
    Abstract: Though there is a body of theoretical literature on research joint venture (RJV) participation facilitating collusion, empirical tests are rare. Even more so, there are few empirical tests on the general theme of collusion. This note tries to fill this gap by assuming a correspondence between the stability of research joint ventures and collusion. By using data from the U.S. National Cooperation Research Act, we show that large RJVs in concentrated industries are more stable and hence more suspect to collusion. <br> <br> <i>ZUSAMMENFASSUNG - Trotz einer Vielzahl von theoretischen Studien, die zeigen, dass Kollusion durch Forschungsallianzen erleichtert werden kann, fehlen empirische Arbeiten, die diesen Zusammenhang bestätigen. Noch erstaunlicher ist die allgemein geringe Anzahl von empirischen Untersuchungen auf dem Forschungsgebiet der Kollusion. Dieser Aufsatz versucht diese Lücke zu schließen wobei unterstellt wird, dass ein Zusammenhang zwischen der Stabilität von Joint-Ventures und der Entstehung von Kollusionen besteht. Anhand von Daten des U.S. National Cooperation Research Act zeigen wir, dass große Forschungsallianzen in stark konzentrierten Branchen stabiler und daher eher der Absprache verdächtig sind.
    Keywords: Research Joint Ventures, Product Market Collusion, Empirical Test
    JEL: L24 L44 L52
    Date: 2008–04
  3. By: Irina Suleymanova; Christian Wey
    Abstract: We analyze market dynamics under Bertrand duopoly competition in industries with network effects and consumer switching costs. Consumers form installed bases, repeatedly buy the products, and differ with respect to their switching costs. Depending on the ratio of switching costs to network effects, our model generates convergence to monopoly as well as market sharing as equilibrium outcomes. Convergence can be monotone or alternating in both scenarios. A critical mass effect, where consumers are trapped into one technology for sure only occurs for intermediate values of switching costs, whereas for large switching costs market sharing is the unique equilibrium and for small switching costs both monopoly and market sharing equilibria emerge. We also analyze stationary and stable equilibria, where we show that a monopoly outcome is almost inevitable, if switching costs or network effects increase over time. Finally, we examine firms' incentives to make their products compatible and to create additional switching costs.
    Keywords: Network effects, switching costs, Bertrand competition, market dynamics
    JEL: L13 D43 L41
    Date: 2008
  4. By: Irina Suleymanova; Christian Wey
    Abstract: We analyze duopoly Bertrand competition under network effects. We consider both incompatible and compatible products. Our main result is that network effects create a fundamental conflict between the maximization of social welfare and consumer surplus whenever products are incompatible. While consumer surplus is highest in the symmetric equilibrium, social welfare is highest in the asymmetric equilibrium. We also show that both consumer surplus and social welfare are higher in any equilibrium under compatibility when compared with incompatible products. However, .firms never have strict incentives to achieve compatibility. Finally, we show the robustness of our results when products are horizontally differentiated.
    Keywords: Bertrand duopoly, network effects, (In-) compatibility, welfare
    JEL: D43 L13
    Date: 2008
  5. By: Pollock, Rufus
    Abstract: Internet search (or perhaps more accurately `web-search') has grown exponentially over the last decade at an even more rapid rate than the Internet itself. Starting from nothing in the 1990s, today search is a multi-billion dollar business. Search engine providers such as Google and Yahoo! have become household names, and the use of a search engine, like use of the Web, is now a part of everyday life. The rapid growth of online search and its growing centrality to the ecology of the Internet raise a variety of questions for economists to answer. Why is the search engine market so concentrated and will it evolve towards monopoly? What are the implications of this concentration for different `participants' (consumers, search engines, advertisers)? Does the fact that search engines act as `information gatekeepers', determining, in effect, what can be found on the web, mean that search deserves particularly close attention from policy-makers? This paper supplies empirical and theoretical material with which to examine many of these questions. In particular, we (a) show that the already large levels of concentration are likely to continue (b) identify the consequences, negative and positive, of this outcome (c) discuss the possible regulatory interventions that policy-makers could utilize to address these.
    Keywords: Search Engine; Regulation; Competition; Antitrust; Technology
    JEL: L10 L50 L40
    Date: 2008–05
  6. By: Javier Coronado; Sergi Jiménez Martín; Pedro L. Marín
    Abstract: Multimarket rivalry theory predicts that firms engaged in price competition in several markets might find it optimal to redistribute market power from more collusive markets to more competitive instances. Price regulation is shown to affect this relation in a non-monotonic way. Mild or low price regulation may encourage further market power redistribution, whereas stronger price controls change the result to the point of making it irrelevant. We use data from the Pharmaceutical industry for nine OECD countries which are known to place different levels of price controls. We find evidence of the redistribution effect and the interaction with price regulations when considering contacts between chemically equivalent products; however, widening the contact dimension to consider interactions among substitute therapies make the result less transparent. We also find some evidence of the expected interaction between price controls and the redistribution effect driven by the multi-market structure of the industry.
    Date: 2008–05
  7. By: CRAMPES, Claude; MOREAUX, Michel
    Date: 2008–02
  8. By: Patrick Van Cayseele
    Date: 2008–03
  9. By: Kirsch, Fabian; Von Hirschhausen, Christian
    Abstract: Since the introduction of Next Generation Networks (NGNs) by telecommunication network operators, national regulators have begun to adapt their access regulation regimes to the new technological conditions. The regulatory reactions gravitate towards three distinct regulatory trajectories: unregulated competition, access regulation, and structural separation. We first analyze the extent of market power in access Networks in NGNs from a technological perspective. Second, we use case studies to identify patterns between technological and market conditions and regulators' reactions in selected countries. We find that market power in the access network is likely to prevail. Regulatory reactions differ with the extent of infrastructure competition and the regulators position in the trade-off between promoting investment and protecting competition.
    Keywords: Next Generation Network; deregulation; access regulation; structural separation.
    JEL: L51
    Date: 2008–03
  10. By: Amendola, Giovanni Battista; Pupillo, Lorenzo Maria
    Abstract: This paper examines the mix of technical, regulatory, and business strategy issues that arise in implementing next generation broadband platforms in Europe. Our review of some European studies on NGAN in Europe and our specific focus on the Italian situation, in particular on the competitive situation in Milano, shows the relevant flaw of continuing to advocate national patterns of regulation. In fact, the deployment of NGAN calls for a radical shift of regulation on a geographic level. The recognition that a NGAN business case does exist for OLO in a number of local areas, mainly metropolitan ones, has relevant regulatory implications.In the first place, since the conditions of competition differ significantly among local areas, regulation should promote both incumbents' and OLO's investments in NGAN by limiting ex ante interventions to those enduring economic bottlenecks found at a specific geographic markets level. In the second place, market definition is the most important step in the market analysis procedure to help decide whether to regulate a given service provided over a NGAN or not. We have proposed a taxonomy of local areas that may be adopted in a country like Italy for a correct geographic definition of markets 4 and 5 and, as a consequence, for the imposition of appropriate remedies.
    Keywords: Next Generation Networks; geographic markets; geographic remedies; infrastructure sharing; market definition.
    JEL: L10
    Date: 2008–03
  11. By: Marcus, J. Scott; Elixmann, Dieter
    Abstract: The emergence of Next Generation Networks (NGNs) raises profound challenges for regulators everywhere. Different regulatory authorities have approached these problems in strikingly different ways, depending in part on the overall regulatory milieu in which they operate, and in part on the nature of the NGN migration envisioned by major market players. Also, the NGN core network raises significantly different issues from those of the NGN access network. The migration to NGN raises many of the same issues that were already on the table as a result of the broader migration to IP-based services, notably in regard to the de-coupling of the service from the underlying network. To these concerns are added profound questions related to the nature of market power. Will NGNs enable new forms of competition? Will competitive bottlenecks remain, especially in the last mile? Will NGN enable new forms of bottlenecks to emerge, especially in the upper layers of the network, perhaps as a result of new IMS capabilities? Regulators in the UK, Netherlands, Germany, Japan and the United States have been forced to deal with these issues due to relatively rapid migration to NGNs proposed by their respective incumbent telecoms operators. Many of the same issues are also visible in the recommendations that the European Commission finalised on 13 November 2007 as part of the ongoing review of the European regulatory framework for electronic communications. In this paper, we compare and contrast the many regulatory proceedings that have been produced by these regulatory authorities.
    Keywords: Regulation; Next Generation Networks; access network; core network; all-IP; competition; market power; international comparison.
    JEL: L51 L10 L50
    Date: 2008–03
  12. By: Reichl, Wolfgang; Ruhle, Ernst-Olav
    Abstract: Developments towards Next Generation Networks (NGN) have a strong impact on the design of the markets for electronic communications in general, but specifically on intercarrier relations with respect to interconnection and access. Due to the fact that competition in the European telecommunications environment has brought about alternative providers and their business models it is an interesting area to investigate how these business models will develop in an NGN environment and which (additional) business models may emerge in the future. To that end, the current paper looks at the development of different business models in the PSTN world and likely developments in the NGN world. This leads to conclusions with respect to requirements of the future regulatory framework of next generation networks in order to maintain the achievements of competition in the telecommunications area.
    Keywords: NGN; business models; migration; competition; regulatory framework.
    JEL: L50
    Date: 2008–03
  13. By: Vincent Rebeyrol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I); Julien Vauday (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I)
    Abstract: Since the GATT/WTO hinders tariffs manipulation, the Technical Barriers to Trade (TBT's) are a growing and appealing protection tool. The endogenous protection literature has shown that a government's taste for protection creates an incentive for lobbying. Since regulations at the origin of such barriers have to be borne also by domestic sectors, due to the National Treatment WTO's principle, this creates conflicts of interests within a sector enhancing an intra-sectoral competition. This paper develops a political economy framework based on common agency under complete information that highlights this issue. The political competition opposes productive versus non productive firms in this context rather than domestic versus foreign ones, contrasting with the literature. Some apparently unorganized sectors, i.e. that are not protected, may actually be sectors where lobbies are biased towards non productive firms. Therefore, we should be cautious when empirically studying the relationship between the levels of protection and contributions.
    Keywords: Endogenous protection, Truthful equilibrium, firm heterogeneity.
    Date: 2008–05
  14. By: Ebell, Monique (Department of Economics and Business Studies, Humboldt University of Berlin, and Centre for Economic Performance, London School of Economics and Political Science); Haefke, Christian (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria, and Instituto de Análisis Económico, CSIC)
    Abstract: We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual bargaining. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980’s and 1990’s could be directly attributed to product market deregulation. Under a traditional calibration, our results suggest that a decrease of less than two-tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount. Under a small surplus calibration, however, product market deregulation can account for the entire decline in US trend unemployment over the 1980’s and 1990’s.;
    Keywords: Product market competition, barriers to entry, wage bargaining
    JEL: E24 J63 O00
    Date: 2008–05

This nep-com issue is ©2008 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.