nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒08‒06
fifteen papers chosen by
Russell Pittman
US Department of Justice

  1. Oligopolistic Competition in Price and Quality By Andrei Dubovik; Maarten C.W. Janssen
  2. Buyer Power in International Markets By Horst Raff; Nicolas Schmitt
  3. Mergers, cartels and leniency programs : the role of production capacities By Emilie Dargaud
  4. R&D Collaboration Networks in Mixed Oligopoly By Vasileios Zikos
  5. Preferred Suppliers in Auction Markets By Roberto Burguet; Martin K. Perry
  6. Market and Technology Access Through Firm Acquisitions: Beyond One Size Fits All By Grimpe, Christoph; Hussinger, Katrin
  7. Negative Network Externalities in Two-Sided Markets: A Competition Approach By Kurucu, Gokce
  8. Innovation and Trade with Heterogeneous Firms By Ngo Van Long; Horst Raff; Frank Stähler
  10. Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Non Linear Pricing and Resale Price Maintenance By BONNET, Céline; DUBOIS, Pierre
  11. Vertical Integration and Operational Flexibility By Michele Moretto; Gianpaolo Rossini
  12. Environmental Regulation and Horizontal Mergers in the Eco-industry By Joan Canton; Maia David; Bernard Sinclair-Desgagné
  13. Asymmetric Price Transmission in Supply Function Equilibrium, Carbon Prices and the German Electricity Spot Market By Wölfing, Nikolas
  14. Institutions, Competition, and Capital Market Integration in Japan By Kris James Mitchener; Mari Ohnuki
  15. An experimental inquiry into the effect of yardstick competition on corruption: By Viceisza, Angelino

  1. By: Andrei Dubovik (Erasmus University Rotterdam); Maarten C.W. Janssen (University of Vienna)
    Abstract: We consider an oligopolistic market where firms compete in price and quality and where consumers are heterogeneous in knowledge: some consumers know both the prices and quality of the products offered, some know only the prices and some know neither. We show that two types of signalling equilibria are possible. Both are characterised by dispersion and Pareto-inefficiency of the price/quality offers. But, better price/quality combinations are signalled with lower prices in one type and with higher prices in the other type.
    Keywords: oligopoly; competition; price; quality; imperfect information; signalling
    JEL: D43 D83 L13 L15
    Date: 2008–07–14
  2. By: Horst Raff; Nicolas Schmitt
    Abstract: This paper investigates the implications for international markets of the existence of retailers/wholesalers with market power. Two main results are shown. First, in the presence of buyer power trade liberalization may lead to retail market concentration. Due to this concentration retail prices may be higher and welfare may be lower in free trade than in autarky, thus reversing the standard effects of trade liberalization. Second, the pro-competitive effects of trade liberalization are weaker under buyer power than under seller power
    Keywords: buyer power, retailing, international trade
    JEL: F12 F15 L13
    Date: 2008–06
  3. By: Emilie Dargaud (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: In this paper, we study the impact of a merger on collusion depending on the endowment of capital asset among firms. We show that the merger makes the collusion easier to sustain when asymmetric capital stock combines with less efficient insiders because of more symmetric conditions and closer incentive constraints. Moreover, this model allows us to determine<br />an optimal threshold of asymmetry among insiders and outsiders such as a merger has pro-competitive effects and we compare this value with the value which would restore perfect symmetry between firms after the merger.
    Keywords: mergers ; collusion ; leniency programs
    Date: 2008
  4. By: Vasileios Zikos (Loughborough University)
    Abstract: We develop a model of endogenous network formation in order to examine the incentives for R&D collaboration in a mixed oligopoly. Our analysis reveals that the complete network, where each firm collaborates with all others, is uniquely stable, industry-profit maximizing and efficient. This result is in contrast with earlier contributions in private oligopoly where under strong market rivalry a conflict between stable and efficient networks is likely to occur. A key finding of the paper is that state-owned enterprises may be used as policy instruments in tackling the potential conflict between individual and collective incentives for R&D collaboration.
    Keywords: Networks, R&D Collaboration, Mixed Oligopoly
    JEL: C70 L13 L20 L31 L32 O31 D85
    Date: 2008–03
  5. By: Roberto Burguet; Martin K. Perry
    Abstract: In a procurement setting, this paper examines agreements between a buyer and one of the suppliers which would increase their joint surplus. The provisions of such agreements depend on the buyer's ability to design the rules of the final procurement auction. When the buyer has no such ability, their joint surplus can be increased by an agreement which grants to the preferred supplier a right-of-first-refusal on the lowest price offer from the other suppliers. When the buyer does have this ability, one agreement which maximizes their joint surplus includes a revelation game for the cost of the preferred supplier and a reserve price in the procurement auction based on that cost.
    Keywords: procurement auctions, bilateral agreements
    JEL: D44 D82 C79
    Date: 2008–07–15
  6. By: Grimpe, Christoph; Hussinger, Katrin
    Abstract: Firm acquisitions have been shown to serve as a way to gain access to international markets, technological assets, products or other valuable resources of the target firm. Given this heterogeneity of takeover motivations and the skewness of the distribution of the deal value we show whether and how the importance of different takeover motivations changes along the deal value distribution. Based on a comprehensive dataset of 652 European mergers and acquisitions in the period from 1997 to 2003, we use quantile regressions to decompose the deal value at different points of its distribution. Our results indicate that the importance of technological assets is indeed higher for smaller target firms. The findings support the view on small acquisition targets to complement the acquirer’s technology portfolio while larger acquisition targets tend to be used to gain access to international markets.
    Keywords: Firm acquisitions, technological assets, market access, quantile regression
    JEL: G34 L20 O34
    Date: 2008
  7. By: Kurucu, Gokce
    Abstract: Consider a firm advertising in a job matching agency with the aim of employing the most qualified workers. Its chances of success would be higher for a smaller number of competitor firms advertising in the same job matching agency, i.e. How would the resulting competitive behavior among the firms which are advertising to this job matching agency affect the agency’s optimal pricing behavior? I analyze the optimal market structures and pricing strategies of a monopolist platform in a two-sided market setup in which the agents on each side prefer the platform to be less competitive on their side; that is, a market with negative intra-group network externalities. I find that the equilibrium market structure varies with the extent of negative externalities. If the market’s negative network externalities are substantial, that is, if an agent’s disutility given the size of the agent pool on his side is high (enough), then the profit-maximizing strategy for the matchmaker will be to match the highest types of one side with all of the agents on the other side, by charging a relatively high price from the former side and allowing free entrance for the agents of the latter side. However, if the network externalities on one side are not substantial, then the matchmaker will maximize profits by matching an equal number of agents from each side. This paper thus provides an explanation of the asymmetric pricing schedules in two-sided markets where the matchmaker uses a one-program pricing schedule.
    Keywords: two-sided market; externalities
    JEL: L11 D42 L12
    Date: 2007–08–30
  8. By: Ngo Van Long; Horst Raff; Frank Stähler
    Abstract: This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity and social welfare. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. We identify two effects of trade liberalization on productivity: a direct effect through changes in R&D investment, and a selection effect due to inefficient firms leaving the market. We show how these effects operate in the short run when market structure is fixed, and in the long run when market structure is endogenous. Among the robust results that hold for any market structure are that trade liberalization (i) increases (decreases) aggregate R&D for low (high) trade costs; (ii) increases expected industry productivity; and (iii) raises expected social welfare if trade costs are low
    Keywords: international trade, firm heterogeneity, R&D, productivity, market structure
    JEL: F12 F15
    Date: 2008–06
  9. By: Dermot Leahy (Economics Finance and Accounting, National University of Ireland, Maynooth); Catia Montagna (University of Dundee and Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham)
    Abstract: We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship-specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.
    Keywords: Outsourcing, Vertical Integration, Trade Liberalisation, Oligopoly
    JEL: F12 L13 L14
  10. By: BONNET, Céline; DUBOIS, Pierre
    Date: 2008–05
  11. By: Michele Moretto (University of Padova); Gianpaolo Rossini (University of Bologna)
    Abstract: The main aim of the paper is to highlight the relation between flexibility and vertical integration. To this purpose, we go through the selection of the optimal degree of vertical disintegration of a flexible firm which operates in a dynamic uncertain environment. The enterprise we model enjoys flexibility since it can switch from a certain amount of disintegration to vertical integration and viceversa. This means that the firm never loses vertical control, i.e., the ability to produce all inputs even when it buys them in the market. This sort of flexibility makes for results which are somehow contrary to the Industrial Organization recent literature and closer to the Operations Research results. In this sense we provide a bridge between the two approaches and rescue Industrial Organization from counterintuitive conclusions.
    Keywords: Vertical Integration, Outsourcing, Entry, Flexibility
    JEL: L24 G C61
    Date: 2008–04
  12. By: Joan Canton (University of Ottawa); Maia David (UMR INRA-AgroParisTech Economie publique); Bernard Sinclair-Desgagné (HEC Montreal, CIRANO and Ecole Polytechniqu)
    Abstract: This paper considers the environmental policy and welfare implications of a merger between environment firms (i.e., firms managing environmental resources or supplying pollution abatement goods and services). The traditional analysis of mergers in Cournot oligopolies is extended in two ways. First, we show how environmental policy affects the incentives of environment firms to merge. Second, we stress that mergers in the eco-industry impact welfare beyond what is observed in other sectors, due to an extra effect on pollution abatement efforts; this might lead to disagreements between an anti-trust agency seeking to limit market concentration which can be detrimental to consumer surplus and a benevolent regulator who maximizes total welfare.
    Keywords: Eco-Industry, Environmental Policy, Horizontal Mergers
    JEL: D62 H23 L11
    Date: 2008–05
  13. By: Wölfing, Nikolas
    Abstract: In January 2007, first evidence of an asymmetric pass-through of CO2 emission allowance prices was reported for the German electricity spot market. This paper explores the theoretical basis for such an asymmetry in the context of a supply function bidding duopoly. It interprets fluctuating carbon prices as a coordination mechanism for tacitly colluding firms and studies incentive compatibility in the repeated game. It is new in its attempt to model asymmetric behaviour in a spot market without relevant frictions, and gives a reasoning why the asymmetry shows up for emission allowances only. The paper concludes with a theorem: that asymmetric price transmission is sustained up to a certain maximum level which might include the monopoly solution and that this mechanism is always preferred to non-cooperation.
    Keywords: Asymmetric price transmission, Electricity spot markets, Emission allowances
    JEL: C73 D82 L13 Q41
    Date: 2008
  14. By: Kris James Mitchener (Assistant Department of Economics, Santa Clara University (; Mari Ohnuki (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Using a newly-constructed panel data set which includes annual estimates of lending rates for 47 Japanese prefectures, we analyze why interest rates converged over the period 1884-1925. We find evidence that technological innovations and institutional changes played an important role in creating a national capital market in Japan. In particular, the diffusion in the use of the telegraph, the growth in commercial branch banking networks, and the development of Bank of Japanfs branches reduced interest-rate differentials. Bank regulation appears to have played little role in impeding financial market integration.
    Keywords: Monetary Policy, Input-Output Matrix, Durables, Non-durables
    JEL: E5 E6
    Date: 2008–07
  15. By: Viceisza, Angelino
    Abstract: "This study reports theory-testing laboratory experiments on the effect of yardstick competition on corruption. The results reveal that on the incumbent's side, yardstick competition acts as a corruption-taming mechanism only if the incumbent politician is female. On the voter's side, voters focus on the difference between the tax rate in their own jurisdiction versus that in another jurisdiction. If the voters' tax rate is deemed unfair compared to that in the other jurisdiction, voters are less likely to re-elect. These findings support the claim by Besley and Case (1995) that incumbent behavior and tax setting are tied together through the nexus of yardstick competition, suggesting that our laboratory experiments have some external validity." from Author's Abstract
    Keywords: Corruption, Yardstick competition, Political agency, Asymmetric and private information, Experiments, Social protection, Institutions,
    Date: 2008

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