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on Industrial Competition |
| By: | Dario Sacco (Socioeconomic Institute, University of Zurich) |
| Abstract: | We argue that, in a simple setting, the relation between the intensity of competition and cost-reducing investment is U-shaped. We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. We first show that, except for firms that are much less efficient than the competitor, investment in the subgame-perfect equilibrium is minimal for intermediate levels of competition, which is inversely parameterized by the extent of product differentiation. An extensive set of laboratory experiments also provides support for the U-shape, both for symmetric firms and for leaders. Also consistent with predictions, the relation is negative for firms that are lagging behind. |
| Keywords: | Investment, intensity of competition, experiment |
| JEL: | C92 L13 O31 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0808&r=com |
| By: | Marco Corsino; Giuseppe Espa; Rocco Micciolo |
| Abstract: | This paper addresses a debated issue in the economics innovation literature, namely the existence of increasing return to R&D expenditures and firm size on innovation output. It further explores how structural characteristics of the firm as well as contextual factors affect the dynamics of product innovation over a relatively long period of time. Taking advantage of an original and unique database comprising innovation data recorded on a monthly base we show that: (i) a negative binomial distribution model is able to predict with great accuracy the probability of having a given number of product announcement sent out in a month; (ii) constant returns to size and R&D expenditure may reasonably characterize the innovation production function of sampled firms; (iii) vertically integrated manufacturers as well as producers operating a larger product portfolio exhibit a higher propensity to introduce new products than their specialized competitors. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:trt:disawp:0803&r=com |
| By: | Gino Loyola |
| Abstract: | This paper analyzes the effects of industrial concentration on bidding behaviour and hence, on the seller´s expected proceeds. These effects are studied under the CIPI model, an affiliated value set-up that nests a variety of valuation and information environments. We formally decompose the revenue effects coming from less competition into four types: a competition effect, an inference effect, a winner´s curse effect and a sampling effect. The properties of these effects are discussed and conditions for (non) monotonicity of both the equilibrium bid and revenue are stated. Our results suggest that it is more likely that the seller benefits from less competition in markets with more complete valuation and information structures. |
| Keywords: | Auctions, Competition, Affiliation, Inference |
| JEL: | C62 D44 D82 L41 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we083318&r=com |
| By: | De Silva Dakshina; Pagel Beatrice; Peeters Ronald (METEOR) |
| Abstract: | We study procurement auctions held in sequential and simultaneous formats. For thelatter format, we find less bid participation and more aggressive bidding for projects withstrong common value components and more competition for projects having strong privatevalue components. |
| Keywords: | microeconomics ; |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2008005&r=com |
| By: | Simbanegavi, Witness |
| Abstract: | This paper attempts to isolate the conditions that give rise to loss leader pricing. I show that for sufficiently low distance between firms, the advertised good is priced below cost irrespective of whether firms advertise the same or different products. Instead, if products are sufficiently differentiated, loss leader pricing may result only if firms advertise the low reservation value product, otherwise the advertised good is a low margin leader. Thus, whether the advertised good is a loss leader or a low margin leader is primarily a function of the extent of differentiation between competing firms. |
| Keywords: | Informative advertising; loss leader; low margin leader; product differentiation |
| JEL: | M3 L1 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9694&r=com |
| By: | Dennis W. Carlton; Patrick Greenlee; Michael Waldman |
| Abstract: | In response to the "standardless" approach used in LePage's v. 3M, the Antitrust Modernization Commission (AMC) and others advocate using a discount allocation approach to assess whether bundled loyalty discounts violate Section 2 of the Sherman Act. This approach treats loyalty discounts like predatory pricing. The analogy to predatory pricing is flawed. We propose an alternative approach that focuses on the presence of significant scale economies. We use our approach to analyze LePage's, as well as the recent PeaceHealth decision. |
| JEL: | L4 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14199&r=com |
| By: | Marco Alderighi (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University) |
| Abstract: | The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets. |
| Keywords: | Localized competition; market effciency, cost heterogeneity; large markets. |
| JEL: | L11 D61 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2008_03&r=com |
| By: | VILLENEUVE, BERTRAND; ZHANG, VANESSA YANHUA |
| Abstract: | We analyze the trade-off faced by competition authorities envisaging a one-shot structural reform in a capitalistic industry. A structure is (1) a sharing of productive capital at some time and (2) a sharing of sites or any other non-reproducible assets. The latter represent opportunities. These two distinct dimensions of policy illustrate the importance of a dynamic theory in which firms may differ in several respects. Though equalization of endowments and rights is theoretically optimal, realistic constraints force competition authorities to adopt second-best solutions. Affirmative action here appears to explain why helping the disadvantaged contributes maximally to social surplus. |
| Keywords: | Competition policy; capacity accumulation; Cournot competition; asymmetric duopoly; regulatory consistency; differential games. |
| JEL: | L13 L40 C73 |
| Date: | 2008–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9700&r=com |
| By: | Heng, Stefan |
| Abstract: | The introduction of sector-specific regulation in the EU has fostered competition and innovation in the telecommunications industry. However, the liberalisation process still has a long way to go. The debate on the new scenario facing European telecoms regulators shows that as far as the institutional (centralised or decentralised) and time-related (ex-post or ex-ante) focus is concerned, a clear policy line is required. Politically motivated delays and ensuing uncertainties in the market must be avoided in order to boost innovation and achieve sustainable competition. |
| Keywords: | regulation; telecommunications; EU; fixed line telephony |
| JEL: | K2 L96 O33 O14 |
| Date: | 2008–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9718&r=com |
| By: | Sophocles N. Brissimis (Bank of Greece and University of Piraeus); Manthos D. Delis (Athens University of Economics and Business); Nikolaos I. Papanikolaou (Athens University of Economics and Business) |
| Abstract: | The aim of this study is to examine the relationship between banking sector reform and bank performance – measured in terms of efficiency, total factor productivity growth and net interest margin – accounting for the effects through competition and bank risk-taking. To this end, we develop an empirical model of bank performance and draw on recent econometric advances to consistently estimate it. The model is applied to bank panel data from ten newly acceded EU countries. The results indicate that both banking sector reform and competition exert a positive impact on bank efficiency, while the effect of reform on total factor productivity growth is significant only toward the end of the reform process. Finally, the effect of capital and credit risk on bank performance is in most cases negative, while it seems that higher liquid assets reduce the efficiency and productivity of banks. |
| Keywords: | Bank performance; Banking sector reform; Competition; Risk-taking |
| JEL: | G21 L1 C14 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:73&r=com |
| By: | Xiaochun Zhang; John E. Parsons |
| Abstract: | The Northeast region of China has been used as a testing ground for creation of a functioning wholesale electric power market. We describe the ownership structure of the generation assets for those plants participating in the trial operation of the Northeast China Regional Electricity Market and also for the region as a whole and for each of the provinces making up the region. We calculate the 4-firm Concentration Ratio (CR4) and the Hirschman-Herfindahl Index (HHI). In general, we find that the current ownership structure is relatively concentrated. Arguably, this is a troublesome obstacle to instituting some form of competitive bidding in the wholesale power market, and this may be one factor in the poor outcome of the trial operation. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0801&r=com |
| By: | Vincent Rious; Jean-Michel Glachant; Yannick Perez; Philippe Dessante |
| Abstract: | It is puzzling today to explain diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. We argue that transmission monopoly in competitive electricity markets has to be analysed within a Wilson (2002) modular framework. Applied to the management of electricity flows, at least three modules make the core of transmission design: 1° the short run management of network externalities; 2° the long run management of network investment; and 3° the coordination of neighboring Transmission System Operators for cross border trade. In order to tackle this diversity of designs of TSOs, we show that for each of these modules, three different basic ways of managing them are possible. Among the identified twenty seven options of organisation, we define an Ideal TSO. Second, we demonstrate that 1°monopoly design differs from this Ideal TSO and 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 have to complement each other to be efficient. Some conclusions for regulatory issues of transmission systems operators are derived from this analysis of network monopoly organisation. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0805&r=com |
| By: | Paula Cristina da Silva Ferreira Neto Rodrigues (Universidade de Aveiro); António Abílio Garrido Brandão (Faculdade de Economia, Universidade do Porto); António de Melo Cerqueira (Faculdade de Economia, Universidade do Porto) |
| Abstract: | When a company decides to invest abroad, it can do it through the establishment of a new firm (greenfield investment) or by the purchase of an already existing firm. Although there is a vast empirical literature on the macroeconomic determinants of aggregate FDI, there are just a few studies examining the location-specific determinants of each entry mode. The aim of this study is to extend the previous work by Globerman and Shapiro (2005) through the analysis of panel data of 53 countries over the period 1996-2006, in order to identify the potential location-specific determinants of both M&A and greenfields. We have found evidence that there is a group of mode-encompassing variables which are common to all entry modes (such as economy’s size, openness, governance and human development index) and mode-specific variables. Investor’s protection and cultural variables seem to play an important role in the explanation of M&A and greenfields, respectively. |
| Keywords: | Foreign Direct Investment, Cross Border Mergers and Acquisitions, Greenfield Investments |
| JEL: | F23 F40 G34 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:281&r=com |
| By: | Charles van Marrewijk (Erasmus University Rotterdam, and IHS); Gus Garita (Erasmus University Rotterdam) |
| Abstract: | We analyze the economic forces underlying cross-border Mergers and Acquistions (M&As) using a large bilateral panel data set. The frequent occurrence of "zero" observations provides essential information on the structure of M&A flows, which we model empirically using a two-stage procedure. At the fist stage, an observation is either classified in the Passive Group (always zero) or in the (potentially) Active Group using a logit model. At the second stage, the size of M&A flows in the Active Group is modeled using a gravity-type negative binomial model. We find that: (i) market size (GDP) of both acquirer and target is more important for trade flows than for cross-border M&As, (ii) market development (per capita GDP) is more important for cross-border M&As than for trade flows, (iii) for M&As, the target’s market, both in size and development, is more important than the acquirer’s market, and (iv) the impact of distance is larger on trade flows than for M&As. Financial openness is a prerequisite for becoming active in M&As and positively influences the size of M&A flows. Our estimates on the direction, size, and significance of the main variables are robust for alternative specifications, incorporating lagged stock market value, black market premium, real interest rates, transparency, and exchange rate variability. Finally, we provide additional support and extend the recent results of Blonigen et al. (2007) on outside-market potential and of Bergstrand and Egger (2007) on Rest of World GDP. |
| Keywords: | capital flows; cross-border mergers & acquisitions; foreign direct investment; financial openness |
| JEL: | E2 E6 F4 G15 G34 |
| Date: | 2008–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080067&r=com |
| By: | Fei Shi |
| Abstract: | This paper develops an endogenous timing model for a quantity-setting duopoly with imperfect information on market, demand and costly market research. If the market research cost K is too high, market research never plays a role. For intermediate values of K, and independently of production costs, there are two SPNE with endogenous leadership. If Kis low, SPNE with endogenous leadership appear if the production costs of the leader are low enough relative to market conditions (e.g. large expected market capacity and small variance thereof). If both firms are relatively inefficient, there is a SPNE with simultaneous production. |
| Keywords: | Endogenous timing; Market research; Endogenous leadership |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0030&r=com |
| By: | Rod Tyers |
| Abstract: | China’s industrial reforms have left many key industries dominated by single or small numbers of firms, most of which remain state owned. Until recently, these firms have not been required to pay dividends to the state and the recent surge in China’s growth has made them very profitable, with their economic profits adding 20% of GDP to corporate saving. This bolsters the overall saving-investment gap and hence China’s controversial current account surplus. In other countries, oligopolistic industries tend to be taxed more heavily and they are commonly subjected to price regulation. This study offers an economy-wide analysis of approaches to oligopoly rents in China. The results suggest that, while policy changes targeting national saving, including increased corporate taxation, expansionary fiscal policy and SOE privatisation all help to control the external imbalance, they tend also to turn demand inward, inducing higher oligopoly rents and slower growth. Competition policy, embodying both price cap regulation and free entry, proves more effective both in controlling the external imbalance and in fostering continued growth. |
| JEL: | D43 D58 F32 L13 L43 L51 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2008-21&r=com |