nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒09‒20
twenty papers chosen by
Russell Pittman
US Department of Justice

  1. Merger Simulation in Competition Policy: A Survey By Oliver Budzinski; Isabel Ruhmer
  2. Competitive Behavior in Market Games: Evidence and Theory By John Duffy; Alexander Matros; Ted Temzelides
  3. Satisficing and prior-free optimality in price competition: a theoretical and experimental analysis By Werner Güth; M. Vittoria Levatia; Matteo Ploner
  4. WP n. 13 - Changing Views of Competition and EC Antitrust Law By Alberto Pera
  5. A comment on efficiency gains and myopic antitrust authority in a dynamic merger game By Pedro Cosme da Costa Vieira
  6. Sequential Innovations and Intellectual Property Rights By Payot, Frederic; Szalay, Dezsö
  7. Vertical Integration and Costly Network Industries By Elisabetta Iossa; Francesca Stroffolini
  8. Vertical Integration and Costly Network Industries By Nigel Driffield; Sarmistha Pal
  9. Heterogeneous Firms, the Structure of Industry & Trade under Oligopoly By Eddy Bekkers; Joseph Francis Francois
  11. Sports Business and the Theory of Multisided Markets By Oliver Budzinski; Janina Satzer
  12. WP n. 16 - Tariffication of Tariff Rate Quotas under oligopolistic competition: the case of the EU import regimes for bananas By Margherita Scoppola
  13. Concentration, entry and exit barriers : effects on the entrepreneurship in the Senegal industry By SENE, Serigne Moustapha
  14. Outflow Dynamics in Modeling Oligopoly Markets: The Case of the Mobile Telecommunications Market in Poland By Sznajd-Weron, Katarzyna; Weron, Rafal; Wloszczowska, Maja
  15. The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions By Athias, Laure; Nunez, Antonio
  16. Are private banks more efficient than public banks ? Evidence from Russia By Alexei Karas; Koen Schoors; Laurent Weill
  17. WP n. 17 - MIncreasing Market Interconnection: an analysis of the Italian Electricity Spot Market By Federico Boffa; Viswanath Pingali
  18. The Effects of Reforming the Chinese Dual-Track Price System By John Bennett; Huw Dixon; Helen X.Y. Hu
  19. Cluster Innovation Along the Industry Lifecycle By Andreas Eisingerich; Oliver Falck; Stephan Heblich; Tobias Kretschmer
  20. Europäische Medienmärkte: Die Rolle der Wettbewerbspolitik By Oliver Budzinski

  1. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Isabel Ruhmer (Center for Doctoral Studies in Economics (CDSE) University of Mannheim)
    Abstract: Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models in merger control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust and, therefore, its ‘technical’ potential is far from being comprehensively exploited and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art merger simulation models and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, merger simulation models represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other, more traditional instruments of competition policy in order to comprehensively unfold its beneficial effects.
    Keywords: merger simulation, merger control, antitrust, oligopoly theory, auction models, mergers & acquisitions
    JEL: L40 C15 K21
    Date: 2008
  2. By: John Duffy; Alexander Matros; Ted Temzelides
    Abstract: We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some, and possibly all, markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient `full` Nash equilibria in which all markets are open and there is a large volume of trade. We further find that as the number of agents participating in the market game increases, the full Nash equilibria they achieve come closer to approximating the associated Walrasian equilibrium of the economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in such games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.
    JEL: C72 C73 C92 D51
    Date: 2008–09
  3. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levatia (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany; University of Trento, Italy)
    Abstract: On a heterogeneous experimental oligopoly market, sellers choose a price, specify a set-valued prior-free conjecture about the others' behavior, and form their own profit-aspiration for each element of their conjecture. We formally define the concepts of satisficing and prior-free optimality and check if seller participants behave in accordance with them. We find that seller participants are satisficers, but fail to be "prior-free" optimal.
    Keywords: Satisficing behavior, Bounded rationality, Triopoly
    JEL: C92 C72 D43
    Date: 2008–09–09
  4. By: Alberto Pera (Gianni, Origoni, Grippo & Partners)
    Abstract: <p align="justify">During the last few years the application of EC antitrust law has been subject to a number of changes, aiming at giving a greater role to economic analysis. This is leading to the abandonment of the traditional ordoliberal inspiration of EC competition law. This paper explores how justi ed is this change. In particular it argues that economic analysis provides di erent views of how competition works and thet it may a ect the application of antitrust at di erent stages. From this point of view a more economic approach is not necessarily incompatible with a reformed ordoliberal paradigm. What appears incompatible is an approach which substitutes eciency for competition. Such an approach has gained a role in the US antitrust, but its extension to the EC legal context is bound to produce a number of problems, and to lead to results di erent from the desired ones.</p>
    Keywords: antitrust,models of competition,ordoliberal paradigm,EC competition law
    JEL: O1 O11
    Date: 2008–03
  5. By: Pedro Cosme da Costa Vieira (Faculdade de Economia, Universidade do Porto)
    Abstract: This paper relaxes the Motta & Vasconcelos’ (2005) short-term assumption that firms’ capital is fixed. We demonstrate that, contrary to the conclusion of that article, in the best interest of consumers, even when firms have large economies of scale, long-term forward-looking Antitrust Authorities must block firms’ merger plans whenever profits of firms are positive.
    Keywords: Antitrust policy, Economies of scale
    JEL: D43 L13 L25 L41
    Date: 2008–09
  6. By: Payot, Frederic (Universitie of Lausanne); Szalay, Dezsö (Economics Department, University of Warwick.)
    Abstract: We analyze a two-stage patent race. In the first phase firms seek to develop a research tool, an innovation that has no commercial value but is necessary to enter the second phase of the race. The firm that completes the second phase of the race first obtains a patent on the final innnovation and enjoys its profits. We ask whether patent protection for the innovator of the research tool is beneficial from the ex ante point of view. We show that there is a range of values of the final innovation such that firms prefer to have no Intellectual Property Rights for research tools.
    Keywords: Sequential Patent Race ; Intellectual Property Rights ; Knowledge Sharing
    JEL: D86 L00
    Date: 2008
  7. By: Elisabetta Iossa; Francesca Stroffolini
    Abstract: We study how vertical integration in regulated network industries affects the acquisition and transmission of socially valuable information on demand. We consider a regulated upstream monopoly with downstream unregulated Cournot competition and demand uncertainty. Demand information serves to set the access price and to foster competition in the unregulated segment but demand realizations can be observed at some cost only by the upstream monopolist; information acquisition is also unobservable. We show that vertical integration favours acquisition of demand information because of the transmission of information generated by the public nature of the regulatory mechanism. This holds both when access to information is easier for the upstream firm and when it is easier for downstream firms.
    Date: 2008–02
  8. By: Nigel Driffield; Sarmistha Pal
    Abstract: The present paper examines the capital structure adjustment dynamics of listed non-financial corporations in seven East Asian countries during 1994-2002. Compared to firms in the least affected countries, average leverages were much higher among firms in the worst affected countries while the average speeds of adjustment were lower. This general ranking is robust to various alternative specifications and sample selections. We argue that this pattern is closely linked to weaknesses in regulatory environment and lack of access to alternative sources of finance in the worst affected countries.
    Date: 2008–03
  9. By: Eddy Bekkers (Department of Economics, Johannes Kepler University Linz, Austria); Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: We develop a model with endogeneity in key features of industrial structure linked to heterogeneous cost structures under Cournot competition. We use the model to explore issues related to cross-country differences in industry structure and the impact of globalization on markups and pricing, concentration, and productivity. The model nests two workhorse trade models, the Brander & Krugman reciprocal dumping model and the Ricardian technology-based trade model, as special cases. We examine both free entry and limited entry (free exit) cases. The model generates clear testable predictions on the probability of zero trade flows and the pattern of export prices, and on cross-country and industry variations in industrial structure controlling for openness. Market prices decline as a result of trade liberalization, the least productive firms get squeezed out of the market, exporting firms gain market share, and more firms become trade oriented. In addition, depending on the strength of underlying cost heterogeneity, falling prices are consistent with both increasing and falling industry concentration following episodes of integration. Welfare rises with trade liberalization, unless trade costs decline from a prohibitive level in the short run free exit case. Variation across industries and markets in markups, concentration, and pricing structures is otherwise a function of market size and the variation in cost heterogeneity across industries.
    Keywords: Firm heterogeneity, Cournot competition, Composition effects of trade liberalization
    JEL: L11 L13 F12
    Date: 2008–09
  10. By: Dermot Leahy; Catia Montagna
    Abstract: We consider the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Factor price considerations dictate that firms acquire the intermediate abroad, by either producing it in a wholly owned subsidiary or outsourcing it to a supplier who must make a relationship specific investment. Firms’ internationalisation mode depends on cost and strategic considerations. Crucially, asymmetric equilibria emerge, with firms choosing different modes of internationalisation, even when they are ex-ante identical. With ex-ante asymmetries, lower cost producers have a stronger incentive to vertically integrate (FDI), while higher cost firms are more likely to outsource.
    Keywords: Outsourcing, Foreign Direct Investment, Trade Liberalisation, Oligopoly
    JEL: F12 F23 L13 L14
    Date: 2008–08
  11. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Janina Satzer (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: Despite still being younger than a decade, the theory of multisided market has offered numerous valuable insights for the analysis of non-ordinary industries in which a supplier serves two distinct customer groups that are indirectly interrelated by externalities. Examples include payment systems, matching agencies, commercial media and software platforms. However, professional sports markets have largely been neglected so far in this kind of research although they possess the characteristics of multisided markets. We contribute to filling this gap by describing the platform elements of professional suppliers of sports events and outlining problems where an application of this theoretical framework is likely to provide valuable insights and to add to the existing knowledge. Among these problems are integrative pricing strategies of sports clubs towards such different customer groups like attendees, broadcasters, sponsors, etc., including their welfare and antitrust implications, design decisions of sports associations in order to promote positive feedback loops among the customer groups as well as strategies to reinforce positive externalities among customer groups and alleviate negative ones.
    Keywords: sports economics, two-sided markets, multisided platforms, professional sports business, pricing strategies, broadcasting rights
    JEL: L83 L82 L13 M21
    Date: 2008
  12. By: Margherita Scoppola (Università di Macerata)
    Abstract: <p align="justify">The paper develops a two-stage capacity constrained duopoly model, in which the mode of competition is endogenous and the constraint is exible, to investigate the impact of Tari Rate Quotas (TRQs) and their liberalization. The model predicts that the greater the gap between the price of the licences plus the in-quota tari and the out-of-quota tari , the closer the outcome of the game to the pure Cournot outcome. The tari equivalent changes according to the prevailing mode of competition under the TRQ. The model is used to address the issue of the tariffication of the non-ACP TRQ for EU banana imports. The results suggest that under the TRQ rms competed on quantity and that the tari equivalent is higher than the tariff introduced by the EU in 2006.</p>
    Keywords: tariff rate quota,bananas,oligopoly
    JEL: O1 O11
    Date: 2008–06
  13. By: SENE, Serigne Moustapha
    Abstract: This paper deals with the explicative factors of entry rate for Senegalese industry branches. The entry rate is considered as a function of branches specificities and affaires environment features. One distinguishes the structural entry barriers, no linked to the strategic behaviors of firms already installed, of other explicative variables, namely concentration, profit rate and exit barriers. The estimation by the generalized least squares method shows that, a fall of 10% of structural barriers involves a growth of 1% of the entry rate. Also, the exit barriers and the development of the competition improve significantly the entry rate which is not meanwhile sensitive to the profit rate. Besides, a semi parametric model is estimated by taking into account the expectancy of the entry rate and the conditional competition at exit barriers. The results reveal that, if the firms already in activity maintain their strategic behaviors, with the same profit rate and if the economy structures are unchanged, then the number of industrial firms in activity may widely increase in relation to the number of the previous year.
    Keywords: Key words : entrepreneurship; market structure; panel data
    JEL: L11 C23 L26
    Date: 2008–09–08
  14. By: Sznajd-Weron, Katarzyna; Weron, Rafal; Wloszczowska, Maja
    Abstract: In this paper we introduce two models of opinion dynamics in oligopoly markets and apply them to a situation, where a new entrant challenges two incumbents of the same size. The models differ in the way the two forces influencing consumer choice - (local) social interactions and (global) advertising - interact. We study the general behavior of the models using the Mean Field Approach and Monte Carlo simulations and calibrate the models to data from the Polish telecommunications market. For one of the models criticality is observed - below a certain critical level of advertising the market approaches a lock-in situation, where one market leader dominates the market and all other brands disappear. Interestingly, for both models the best fits to real data are obtained for conformity level 0.3<p<0.4. This agrees very well with the conformity level found by Solomon Asch in his famous social experiment.
    Keywords: opinion dynamics; outflow dynamics; agent-based model; oligopoly market; advertising; mobile telephony
    JEL: D70 L13 M37 C15
    Date: 2008–09–10
  15. By: Athias, Laure; Nunez, Antonio
    Abstract: We empirically assess the winner’s curse effect in auctions for toll road concessions. First, we investigate the overall winner’s curse effects on bidding behaviour. Second, we account for differing levels of common-value components. Third, we investigate whether the possibility of renegotiation affects the winner’s curse effect. Using a unique dataset of 49 concessions, we show that the winner’s curse effect is particularly strong, i.e. bidders bid less aggressively when they expect more competition. In addition, we observe that this effect is larger for projects where the common uncertainty is greater, and is dampened in weaker institutional frameworks, in which renegotiations are easier.
    Keywords: Winner’s curse; Common value auction; Public Private Partnerships; incomplete contract.
    JEL: H57 H54 L51 H11 D44 D82
    Date: 2008–04–20
  16. By: Alexei Karas; Koen Schoors; Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)
    Abstract: We study whether bank ownership is related to bank efficiency in Russia. We find that foreign banks are more efficient than domestic private banks and – surprisingly – that domestic private banks are not more efficient than domestic public banks. These results are not driven by the choice of the production process, the bank’s environment, the management’s risk preferences, the bank’s activity mix, size or the econometric approach. The evidence in fact suggests that domestic public banks are more efficient than domestic private banks and that the efficiency gap between these two types of banks is not lower after the introduction of deposit insurance in 2004. This may be due to increased switching costs or to the moral hazard effects of deposit insurance. The policy conclusion is that the efficiency of the Russian banking system may benefit more from increased levels of competition and higher access of foreign banks than from bank privatization.
    Keywords: Bank Efficiency; State Ownership; Foreign ownership; Russia.
    JEL: G21 P30 P34 P52
    Date: 2008
  17. By: Federico Boffa; Viswanath Pingali (School of Economics and Management, Free University of Bolzano, Cornerstone Research-Boston)
    Abstract: <p>We estimate the bene ts resulting from completely interconnecting the Italian electricity spot market. The market is currently divided into two geographic zones - North and South - with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market for May 2004, we predict that the total spot market expenditure reduces substantially by almost four percent. Our analysis finds evidence that the (partly State owned) major firm in the market does not currently maximize its short-term profit, and would benefit as well from improved interconnection.</p>
    Keywords: Transmission constraints,self-regulated monopoly,zonal pricing,congestion
    JEL: O1 O11
    Date: 2008–06
  18. By: John Bennett; Huw Dixon; Helen X.Y. Hu
    Abstract: We formulate a microeconomic model of the dual-track price system for Households and use it to analyze 'transitional policy' reforms, which we characterize as a rise in plan-track price and a reduction in the plan-track quantity. Each of these reforms has a negative effect on market price, but a positive effect on the weighted average price (CPI). When households are homogeneous, transitional policy reform reduces welfare (if profits are not fully distributed). Under fairly mild assumptions, if households are heterogeneous and resale of goods can occur, transitional policy reform creates losers (state employees) as well as winners (non-state employees).
    Date: 2008–07
  19. By: Andreas Eisingerich (Tanaka Business School, Imperial College London); Oliver Falck (Ifo Institute for Economic Research and CESifo); Stephan Heblich (Max Planck Institute of Economics); Tobias Kretschmer (Institute for Communication Economics, LMU Munich)
    Abstract: Industrial clusters develop regionally along the industry's lifecycle and typically exist over many product generations. In order to maintain their innovativeness, they have to develop and adjust along the industry lifecycle. We conduct 142 depth face-to-face interviews in clusters across two continents to examine the drivers of a cluster's innovativeness along the industry lifecycle. The results from our interviews suggest that the impact of key drivers of cluster innovativeness change depending on the stage of a cluster's underlying industry lifecycle. Classifying clusters as either being adolescent (information technology, biotechnology) or mature (automotive, chemicals), our regression analyses show a changing influence of cluster patterns along the industry lifecycle on a firm's innovativeness. Specifically, we analyze the impact of interorganizational network strength, openness, university collaboration, and intrapreneurship on radical innovation across adolescent and mature clusters. Implications for research and policy makers are discussed.
    Keywords: Cluster, Industry Lifecycle, Innovation
    JEL: O18 R12 L6
    Date: 2008–09–11
  20. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: Medienmärkte sind aufgrund ihrer kulturellen und sprachlichen Verwurzelungen (sowie umfangreicher nationaler (Schutz-) Regulierungen) Spätentwickler der europäischen Integration. Bis heute wurden und werden die meisten Medienmärkte national abgegrenzt, wie beispielsweise auch bei dem Megafusionsvorhaben Springer-ProSiebenSat.1 (2006) geschehen, für welches die mitgliedstaatlichen Wettbewerbs- und Regulierungsbehörden – Bundeskartellamt und KEK – zuständig waren, welche wiederum das Zusammenschlussvorhaben schließlich beide untersagten (Budzinski und Wacker 2007). Konsequenterweise obliegt die Regulierung von Medienmärkten daher bis heute ganz überwiegend den EU-Mitgliedstaaten, während sich eine eigene europäische Regulierung in den Kinderschuhen befindet.2 Doch auch in der Medienbranche treten verstärkt Internationalisierungstendenzen auf, die auch Rufe nach einer Europäisierung der Medienaufsicht und -regulierung mit sich bringen (Harcourt 2005, S. 50; Gounalakis und Zagouras 2006). Zusätzlich zu der medienspezifischen Regulierung unterliegen Medienmärkte auch der ‚normalen’ Wettbewerbsaufsicht. Hier kommen der EU immer dann umfangreiche Kompetenzen zu, wenn der grenzüberschreitende Handel innerhalb des Europäischen Wirtschaftsraumes durch wettbewerbswidriges Verhalten der Unternehmen betroffen ist. Mit einer zunehmenden Internationalisierung von Medienmärkten gehen somit auch erweiterte Kompetenzen der europäischen Wettbewerbsaufsicht einher, die sich in steigenden Fallzahlen bei der Generaldirektion Wettbewerb der Europäischen Kommission zeigen. Dabei wird in der Literatur mitunter die These vertreten, dass die Europäische Kommission über ihre Generaldirektion Wettbewerb immer wieder versucht hat, die europäischen Wettbewerbsregeln in Medienmärkten für weitere Ziele zu instrumentalisieren – wie öffentliches Interesse und insbesondere kulturelle und Meinungsvielfalt (bspw. Harcourt 2005). Der vorliegende Beitrag analysiert exemplarisch anhand wichtiger Fälle, welchen Einfluss die europäische Wettbewerbspolitik auf die Entstehung und Entwicklung europäischer Medienmärkte nimmt (Abschnitt 3).3 Vorweg sind allerdings ein paar grundsätzliche Bemerkungen zu Zuständigkeiten und Abgrenzungen zwischen europäischer und mitgliedstaatlicher Ebene (einerseits) sowie zwischen ökonomischem Wettbewerb und Medienpluralismus andererseits notwendig (Abschnitt 2). 2
    Keywords: merger simulation, merger control, antitrust, economic evidence
    JEL: L40 C15 K21 A11
    Date: 2008

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