nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒10‒13
fifteen papers chosen by
Russell Pittman
US Department of Justice

  1. Competitive Intensity as Driver of Innovation and Productivity Growth: A Synthesis of the Literature By Andrew Sharpe; Ian Currie
  2. Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship By Zoltan J. Acs; Mark Sanders
  3. Minimum Quality Standards and Equilibrium Selection with Asymmetric Firms. By Olivier Bonroy; Christos Constantatos
  4. Opportunistic competition law enforcement By Michiel Bijlsma; Roel van Elk
  5. Competition Policy and Public Procurement in Developing Countries By Rod Falvey; Annamaria La Chimia; Oliver Morrissey; Evious Zgovu
  6. Emerging Issues in Promoting Competition Policy in the APEC and ASEAN Countries By Aldaba, Rafaelita Mercado
  7. Assessing Competition in Philippine Markets By Aldaba, Rafaelita Mercado
  8. Institutional Determinants of New Firm Entry in Russia: A Cross Regional Analysis By Bruno, Randolph Luca; Bytchkova, Maria; Estrin, Saul
  9. Innovation, convergence and the role of regulation in the Netherlands and beyond By Paul de Bijl; Martin Peitz
  10. Access Regulation and the Adoption of VoIP By Paul de Bijl; Martin Peitz
  11. Development of Competition and the Micro-Level (in Finnish with an English abstract/summary) By MIKA MALIRANTA
  12. Growth and Competition in a Model of Human Capital Accumulation and Research By Bianco, Dominique
  13. Vertical relationships between health insurers and healthcare providers By Michiel Bijlsma; Arno Meijer; Victoria Shestalova
  14. Against Intellectual Monopoly By Michele Boldrin; David K Levine
  15. The spatial selection of heterogeneous firms By Toshihiro Okubo; Pierre M. Picard; Jacques-François Thisse

  1. By: Andrew Sharpe; Ian Currie
    Abstract: The objective of the report is to survey and assess the existing economic theoretical literature and empirical evidence on the linkages between open and competitive markets (competitive intensity) and innovation and productivity growth. The report is divided into three main parts. The first part examines the state of economic theory on the relationship between competitive intensity, innovation and productivity. The second section examines relevant empirical work that has been done on the role of firm dynamics in sustaining a competitive environment. The third section surveys evidence of linkages provided by the international case studies of the effects of open and competitive markets on innovation and productivity. The report concludes that the weight of the evidence indicates that competitive intensity has a strong positive effect on innovation and productivity. Accordingly, Canada should pay closer attention to the competitive implications of public policy than has been the case in the past. The international experience provides strong support for this conclusion. While there can be negative implications for certain groups from such policy changes, the evidence shows that they are often smaller than anticipated. Restrictions on competition should only be allowed when it can be demonstrated that they are needed to achieve overriding societal interests.
    Keywords: Competition, Competition policy, competitive intensity, innovation, productivity, firm dynamics, empirical work, case studies
    JEL: O20 O33 O38 O47
    Date: 2008–06
  2. By: Zoltan J. Acs; Mark Sanders
    Abstract: We develop a model in which stronger protection of intellectual property rights has an inverted U-shaped effect on innovation. Intellectual property rights protection allows the incumbent firms to capture part of the rents of commercial exploration that would otherwise accrue to the entrepreneurs. Stronger patent protection will increase the incentive to do R&D and generate new knowledge. This has a positive impact on entrepreneurship and innovation. However, after some point, further strengthening patent protection will reduce the returns to entrepreneurship sufficiently to reduce overall economic growth.
    Keywords: Intellectual Property Rights, Endogenous Growth, Entrepreneurship, Incentives, Knowledge Spillovers, Rents
    JEL: J24 L26 M13 O3
    Date: 2008–09
  3. By: Olivier Bonroy (GAEL, INRA—Pierre Mendes France University); Christos Constantatos (Department of Economics, University of Macedonia)
    Abstract: In a vertically differentiated market with cost asymmetries, the risk dominance criterion selects the equilibrium where the high quality is produced by the efficient firm. We show that a sufficiently high MinimumQuality Standard reverses equilibrium selection. Hence, MQS may be used in order to increase a domestic firm’s profit at the expense of a more efficient foreign rival. This produces higher domestic and lower world welfare. Since the protectionist impact of MQS comes through equilibrium targeting rather than directly affecting equilibrium outcomes, it cannot be easily detected.
    Keywords: Vertical product differentiation, Minimum quality standards, Equilibrium selection, Protectionism.
    JEL: L13 L5 F13
    Date: 2008–10
  4. By: Michiel Bijlsma; Roel van Elk
    Abstract: Most studies of competition law enforcement treat competition authorities as all-knowing, unwavering and benevolent. They do not behave opportunistically, do not face asymmetric information and choose their actions to optimize social welfare. In this paper, we drop one of these assumptions, and study a competition authority that can not commit to a particular investigation strategy. As a consequence, a competition authority’s decisions to investigate will be driven by the (ex-post) desistance effect instead of the (ex ante) deterrence effect of an investigation policy. The resulting opportunistic behaviour may lead to a suboptimal investigation strategy.<BR> To analyse the interplay between investigation policies, deterrence and desistance, we study a model in which a competition authority monitors multiple sectors and faces a budget constraint that prevents it from deterring cartels in all sectors simultaneously. We find that, in the absence of commitment, developing a sector specific reward scheme based on the number of captured cartels can improve welfare.
    Keywords: cartels; competition law; commitment
    JEL: L13 L41 L44
    Date: 2008–08
  5. By: Rod Falvey; Annamaria La Chimia; Oliver Morrissey; Evious Zgovu
    Abstract: Measures to support Competition Policy and enhance the efficiency of Public Procurement can enhance the impact of regional integration agreements. The first part addresses Competition Policy - measures employed by government to ensure a fair competitive market environment. Competition policy aims to ensure that markets remain competitive (through anti-trust or anti-cartel enforcement) or become competitive (through liberalisation). For a variety of reasons, competition is often restricted in developing countries and there are benefits from establishing some level of competition policy. Although the literature does not provide a blueprint, it provides guidance on the most useful ways to incorporate Competition Policy in regional agreements. The second part addresses issues in opening up public procurement and outlines the main potential sources of welfare gains. Open and transparent procurement can bring gains in terms of price reduction, competition and reduced corruption. While developing countries recognize these benefits for domestic policy, they appear opposed to including procurement commitments in international agreements.
    Keywords: Competition Policy, Public Procurement, Regional Integration
  6. By: Aldaba, Rafaelita Mercado
    Abstract: This paper looks at the emerging issues and problems in promoting competition policy and coordinating its implementation under regional arrangements, particularly the APEC and the ASEAN. Implementing competition policy is a big challenge. As the review of country experiences shows, administrative, legal, political, and economic factors are important in the design and implementation of competition law and policy. The APEC experience illustrates that with the wide differences in the countries’ stage of socioeconomic development as well as in their legal institutions, countries have differed in their approaches to competition. In the ASEAN, difficulties in the development of competition policy are encountered due to the lack of a culture of competition and weak legal and regulatory infrastructures.
    Keywords: competition policy, ASEAN, APEC countries
    Date: 2008
  7. By: Aldaba, Rafaelita Mercado
    Abstract: <p>This paper reviews the current empirical literature on competition and market structure of Philippine industries. It shows that weak competition is one of the fundamental factors that explain limited growth, productivity, and employment in the economy. Philippine experience has shown that reforms such as trade liberalization, deregulation, and privatization, while necessary, are not sufficient to foster effective competition. The success of these reforms depends on the creation of a competitive domestic market environment, which is in turn determined by the interplay of behavioral, regulatory, and structural constraints along with the broader aspects of competitive infrastructure.</p>
    Keywords: competition, market structure, regulation
    Date: 2008
  8. By: Bruno, Randolph Luca (University of Bologna); Bytchkova, Maria (London School of Economics); Estrin, Saul (London School of Economics)
    Abstract: We analyse a three-year panel data set of Russian firms spanning from 2000 to 2002 and we investigate the effect of regional institutional and economic factors on entry rates across time, industries and regions. The paper builds on a novel database and exploits inter-regional variation in a large number of institutional variables. We find entry rates in Russia are not especially low by international standards and are correlated with natural entry rates, institutions and firm size. Furthermore, industries that ─ for scale and technological reasons ─ are characterised by higher entry rates will experience lower entry within regions affected by higher business risk. In other words industries that naturally have low entry barriers are most affected by business constraints.
    Keywords: entry rate, business environment, Tobit model
    JEL: D21 L26 P31
    Date: 2008–09
  9. By: Paul de Bijl; Martin Peitz
    Abstract: In the light of converging services for voice, data, and video, this paper discusses the challenges for telecommunications regulation from a European perspective. The Netherlands, a country with excellent conditions for facilities-based competition, is discussed as a case in point. With dynamic issues at the heart of the debate, the role of regulation and government intervention more generally is to create and possibly to sustain conditions among operators to upgrade their networks and to provide innovative services. A fresh look at current regulation suggests that an overhaul may be needed.
    Keywords: telecommunications regulation; convergence; network access; IP networks; competition; innovation; NGN networks
    JEL: L96 L5
    Date: 2008–07
  10. By: Paul de Bijl; Martin Peitz
    Abstract: The introduction of packet-switched telephony in the form of VoIP raises concerns about current regulatory practice. Access regulation has been designed for traditional telephony on PSTN networks. In this paper, we analyze the effect of access regulation and retail price regulation of PSTN networks on the adoption of a new technology in the form of VoIP. In particular, we show that with endogenous consumer choice between PSTN and VoIP telephony, higher prices for terminating access to the PSTN network make VoIP less likely to succeed and lead to lower profits of operators that offer VoIP telephony exclusively
    Keywords: telecommunications; voice over broadband (VoB); voice over Internet protocol (VoIP); entry; access; regulation; imperfect competition
    JEL: L96 L51 L13
    Date: 2008–07
    Abstract: ABSTRACT : The use of traditional industry-level profitability indicators for assessing the state of competition is problematic for two reasons. First, short-term variation reflects business cycles more than it does the impact of competition policy. Second, rough industry-level indicators hide different mechanisms that are dependent on competition but may affect profitability in opposite directions. In this analysis both problems are avoided by using firm-level Financial Statement Statistics of Statistics Finland over the years 1995-2006 and by applying a decomposition method. With these tools the micro-level sources of industry-level profitability changes have been examined over a long-run period. The findings provide support to the general view having emerged from the earlier micro-level analysis that competition has developed in a favorable way in Finland until the end of the 1990s. On the other hand, the results reveal interesting differences between periods, sectors and regions, which describe challenges of competition policy in the future
    Keywords: Competition, profitability, measures of competition, micro-structural change
    JEL: D40 D33 L11
    Date: 2008–10–07
  12. By: Bianco, Dominique
    Abstract: The aim of this paper is to analyze the relationship between competition and growth in a model of human capital accumulation and research by disentangling the monopolistic mark-up in the intermediate goods sector and the returns to specialization in order to have a better measure of competition. We find that the steady-state output growth rate depends on the parameters describing preferences, human capital accumulation technology and R&D activity. We also show that the relationship between competition and growth is inverse U shaped. This result that seems to be in line this empirical results (Aghion and Gri±th (2005)) is explained by the resource allocation effect.
    Keywords: Endogenous growth; Horizontal differentiation; Technological change; Imperfect competition; Human capital
    JEL: L16 O41 J24 O31 D43
    Date: 2008–10–06
  13. By: Michiel Bijlsma; Arno Meijer; Victoria Shestalova
    Abstract: The current institutional reforms in the Dutch healthcare sector may increase the extent of vertical relations (such as vertical contracts and vertical integration) between insurers and healthcare providers. Vertical relations may have both welfare increasing and welfare reducing effects. In this study, we focus on the latter, in particular on anticompetitive foreclosure. We distinguish three possible mechanisms that may lead to anticompetitive foreclosure, called respectively ‘exclusivity’, ‘sabotage’, and the ‘waterbed effect’. We discuss under which conditions they come into play and which policy measures can prevent them.
    Keywords: healthcare reform; selective contracting; vertical integration; foreclosure
    JEL: D4 I11 I18
    Date: 2008–08
  14. By: Michele Boldrin; David K Levine
    Date: 2008–10–04
  15. By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University); Pierre M. Picard (University of Manchester (United Kingdom) and CORE, Université catholique de Louvain (Belgium)); Jacques-François Thisse (CORE, Université catholique de Louvain (Belgium), PSE (France) and CEPR)
    Abstract: The aim of this paper is to study the spatial selection of firms once it is recognized that heterogeneous firms typically choose different locations in respond to market integration of regions having different sizes. Specifically, we show that decreasing trade costs leads to the gradual agglomeration of efficient firms in the large region because these firms are able to survive in a more competitive environment. In contrast, high-cost firms seek protection against competition from the efficient firms by establishing themselves in the small region. However, when the spatial separation of markets ceases to be a sufficient protection against competition from the low-cost firms, high-cost firms also choose to set up in the larger market where they have access to a bigger pool of consumers. This leads to the following prediction: the relationship between economic integration and interregional productivity differences first increases and then decreases with market integration.
    Keywords: firm heterogeneity; spatial selection; trade liberalization
    JEL: F12 H22 H87 R12
    Date: 2008–09

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