|
on Industrial Competition |
| By: | Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | In past years, imperfect competition has been introduced in several dynamic models to show how mark-up variability, increasing returns (decreasing marginal cost), and monopoly profits affect the occurrence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies: consumers' taste for variety due to endogenous product diversity. Introducing monopolistic competition (Dixit and Stiglitz (1977), Bénassy (1996)) in an overlapping generations model where consumers have taste for variety, we show that local indeterminacy can occur under the three following conditions: a high substitution between capital and labor, increasing returns arbitrarily small and a not too elastic labor supply. The key mechanism for this result is based on the fact that, due to taste for variety, the aggregate price decreases with the pro-cyclical product diversity, which has a direct influence on the real wage and the real interest rate. |
| Keywords: | Endogenous fluctuations; taste for variety; imperfect competition. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00266722_v1&r=com |
| By: | Klaus M. Schmidt; (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany; ) |
| Abstract: | Many high technology goods are based on standards that require access to several patents that are owned by different IP holders. We investigate the royalties chosen by IP holders under different market structures. Vertical integration of an IP holder and a downstream producer solves the double mark-up problem between these firms. Nevertheless, it may raise royalty rates and reduce output as compared to non-integration. Horizontal integration of IP holders (or a patent pool) solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always encourages entry and innovation. |
| Keywords: | IP rights, complementary patents, standards, licensing, patent pool, vertical integration |
| JEL: | L15 O31 L24 O32 K11 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:249&r=com |
| By: | Jens Südekum |
| Abstract: | Governments in several countries have recently spent considerable effort to defend domestic firms against acquisition attempts from abroad and instead favoured mergers among national firms. In this paper we offer an explanation why globalization can reinforce the case for promoting “national champions”. We analyze an oligopolistic market where a domestic and a foreign firm are engaged in a takeover battle for a domestic competitor. Any merger or acquisition (M&A) must be approved by the national government whose objective function may include a bias against the foreign takeover. That bias endogenously results from lobbying efforts of the domestic firm that would become the outsider in the foreign acquisition scenario. In the case where the government is unbiased and only cares about welfare we find that falling trade barriers trigger the cross-border acquisition. However, when the domestic government cares sufficiently strongly about lobbying contributions, globalization has a qualitatively different effect. The foreign takeover would then only emerge in an intermediate range of trade costs.Once trade integration reaches a critical level the biased government starts to block the foreign takeover and instead opens the door for the national champion. |
| Keywords: | Mergers, takeovers, national champions, international trade, trade integration, economic patriotism |
| JEL: | F12 F23 L13 L52 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0066&r=com |
| By: | Klaus Desmet (Universidad Carlos III); Stephen L. Parente (University of Illinois) |
| Abstract: | This paper proposes a novel mechanism whereby larger markets increase competition and facilitate process innovation. Larger markets, in the sense of more people or more open trade, support a larger variety of goods, resulting in a more crowded product space. This raises the price elasticity of demand and lowers mark-ups. Firms, therefore, become larger to break even. This facilitates process innovation as larger firms can amortize R&D costs over more goods. We demonstrate this mechanism in a standard model of process and product innovation. In doing so, we question some important results in the new trade and endogenous growth literatures. |
| Keywords: | trade; population; price elasticity; competition; innovation; firm-size; scale effects; Dixit-Stiglitz; Hotelling |
| JEL: | F12 L11 O31 |
| Date: | 2008–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:imd:wpaper:wp2008-10&r=com |
| By: | de Vries, Frans P.; Schoonbeek, Lambert |
| Abstract: | This paper considers a market with an incumbent monopolistic firm and a potential entrant. Production by both firms causes polluting emissions. The government selects a tax per unit emission by maximizing social welfare. The size of the tax rate affects whether or not the potential entrant enters the market. We identify the conditions that create a market structure where the preferences of the government and the incumbent firm coincide. Interestingly, there are cases where both the government and incumbent firm prefer a monopoly. Hence, the government might induce profitable monopolization by using a socially optimal tax policy instrument. |
| Keywords: | market structure; taxes; monopoly; environmental pollution |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:stl:stledp:2008-19&r=com |
| By: | Bedri Kamil Onur Tas; Rasim Ozcan; Ilke Onur |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:tob:wpaper:0814&r=com |
| By: | André van Stel; Mickey Folkeringa; Kashifa Suddle; Sita Tan |
| Abstract: | Business dynamics in an industry is generally seen as an important indicator of the industry's level of competitiveness and economic performance. Two types of business dynamics may be distinguished: business dynamics reflecting competition by new-firm entries and business dynamics reflecting competition among incumbent firms. A growing literature pays attention to the important role of the former type of business dynamics (the starting up of new firms) for achieving economic growth. However, the latter type of business dynamics tends to be overlooked in this type of literature. In part this is due to the large requirements, both in terms of data and in terms of methodology, of measuring competition among incumbent firms. A sophisticated indicator for measuring the extent of business dynamics among incumbent firms in an industry is the mobility index. In the current paper we compute mobility indices for 16 industries -covering the whole private sector except for the primary sectors of economy- in the Netherlands over the period 2000-2006, and compare the values of the mobility indices across the sectors. |
| Date: | 2008–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:eim:papers:h200816&r=com |
| By: | Robert M. Feinberg; Kara M. Reynolds |
| Abstract: | This paper explores the change in the level of competition in rural banking markets since the deregulation that occurred following passage of the Riegle Neal Act of 1994. Using an empirical model that utilizes both the number of banks and the value of deposits in a cross-section of rural markets, we decompose the impact of the entry of new banks into resulting changes in per capita demand and the costs/profits of local banks in both 1994 and 2004. We conclude that the banking market is more competitive today despite the fact that the number of banks may have declined; on average fewer banks are now needed to make rural banking markets competitive than were needed in 1994. |
| Keywords: | Entry, Banking |
| JEL: | L11 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0508&r=com |
| By: | Klaus Schaeck (Bangor Business School, Hen Goleg, College Road, Bangor, LL57 2DG, UK.); Martin ?ihák (International Monetary Fund, 700 19th Street N. W. Washington, D. C. 20431, USA.) |
| Abstract: | A growing body of literature indicates that competition increases bank soundness. Applying an industrial organization based approach to large data sets for European and U.S. banks, we offer new empirical evidence that efficiency plays a key role in the transmission from competition to soundness. We use a twopronged approach. First, we employ Granger causality tests to establish the link between competition and measures of profit efficiency in banking, and find that competition indeed increases bank efficiency. Second, building on these results, we examine the relation between the Boone indicator [Boone, J. (2001)Intensity of competition and the incentive to innovate. IJIO, Vol. 19, pp. 705-726], an innovative measure of competition that focuses on the impact of competition on performance of efficient banks, and relate this measure to bank soundness. We find evidence that competition robustly increases bank soundness, via the efficiency channel. JEL Classification: G21, G28, L11. |
| Keywords: | Bank competition, efficiency, soundness, market structure, regulation. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080932&r=com |
| By: | Christa Hainz (University of Munich); Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg); Christophe J. Godlewski (Laboratoire de Recherche en Gestion et Economie, Université Louis Paster) |
| Abstract: | We investigate the impact of bank competition on the use of collateral in loan contracts. We develop a theoretical model incorporating information asymmetries in a spatial competition framework where banks choose between screening the borrower and asking for collateral. We show that the presence of collateral is more likely when bank competition is low. We then test this prediction empirically on a sample of bank loans from 70 countries. We perform logit regressions of the presence of collateral on bank competition, measured by the Lerner index. Our empirical tests corroborate the theoretical predictions that bank competition reduces the presence of collateral. These findings survive several robustness checks. |
| Keywords: | Collateral, Bank Competition, Asymmetric information. |
| JEL: | G21 D43 D82 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2008-19&r=com |
| By: | Nicolas Gruyer (LEEA (air transport economics laboratory), ENAC); Kevin Guittet (DSNA/DTI/R&D) |
| Abstract: | In this paper, we study the impact of the introduction of posted prices in the slot allocation process currently in use at congested airports in most European countries. In particular, we show that if the airport is initially saturated, while low level of slot prices entail no response from the airlines, requests for slots ”suddenly and violently” drop when the price reaches a certain threshold. In general, there is therefore no market clearing price for airport slots. We also present a dynamic model which highlights how the current grandfather rule - stating that slots used today are kept in the future - generates baby-sitting, that is airlines requiring and using slots today just because they expect them to be profitable in the future. |
| Keywords: | Capacity-constrained competition, airport slots |
| JEL: | D21 L10 L93 |
| Date: | 2008–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:enc:abcdef:airportslots5&r=com |
| By: | Steffen Hoernig (School of Economics, Universidade Nova de Lisboa) |
| Abstract: | We consider some two dynamic models of entry in mobile telephony, with and without strategic pricing, and taking into account market penetration at entry, locked-in consumers and tariff-mediated network externalities. We show that on/off-net differentials may reduce the possibility of entry if incumbents are large, while they have no long-run effects if there are no locked-in consumers, or reduce the difference in subscriber numbers in their presence. Asymmetric fixed-to-mobile or mobile-to-mobile termination rates increase (decrease) market share and profit of the network with the higher (lower) rate. While the fixed-to-mobile waterbed effect is not full at the network level, it will be full in the aggregate. |
| Keywords: | Mobile Telephony, Entry, Penetration, Mobile termination rates |
| JEL: | L13 L51 L96 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0838&r=com |
| By: | Lapo Filistrucchi (Department of Economics, CentEr & TILEC, Tilburg University) |
| Abstract: | I discuss the design and implementation of a SSNIP test in order to identify the relevant market in a media market. I argue that in such a two-sided market the traditional SSNIP test cannot be applied as it is usually conceived but rather should be modified in order to take into account indirect network externalities. I discuss the issues of which price the hypothetical monopolist should be thought of as raising, of whether we should look at profits changes on only one side or on both sides of the market and of which feedback among the two sides of the market we should take into account. I then derive the relevant formulas for Critical Loss Analysis. These look much uglier than in a single-sided market but in fact they are easy to calculate as they are still expressed in terms of elasticities and of current observed markups, prices and quantities. Data requirements are however higher as one needs to estimate the matrixes of the own and cross price elasticities of demand on the two-sides of the market and the matrixes of the network effects. The paper fills a gap in the economic literature, so much more as market definition in media markets is at the centre of many recent competition policy and regulation cases around the world. |
| Keywords: | two-sided markets, SSNIP test, Hypothetical Monopolist test, critical loss analysis, critical elasticity analysis, market definition, media |
| JEL: | L40 L50 K20 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0834&r=com |
| By: | Maximilian Kasy (UC-Berkeley, Department of Economics); Michael Kummer (Johannes Keppler University, Linz, Austria) |
| Abstract: | We analyze the behavior of start-ups in e-commerce, namely on Austria's leading price-comparison-site, a multi-product environment with almost complete information. We use weekly panel data on price-quotes of digicams, Audio/HiFi-equipment and hardware. We furthermore use advanced estimation methods, which, having only recently been introduced to IO, aim at using a minimum of modeling assumptions. Thus, being able to trace the behavior of roughly 350 start-up companies and 600 incumbents, we investigate whether start-ups have a different composition of product-portfolios, charge lower prices and offer fewer goods. |
| Keywords: | nonparametric estimation, panel data, start-up, entry, e-commerce, strategic behavior, pricing |
| JEL: | C14 C23 L11 L14 L81 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0823&r=com |
| By: | Gautier Duflos (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Etienne Pfister (BETA-Règles - Université de Nancy II) |
| Abstract: | This article analyzes the individual determinants of acquisition activity and target choices in the pharmaceutical industry over the period 1978-2002. The "innovation gap" hypothesis states that acquiring firms lack promising drug compounds and acquire firms with more promising drug prospects. A duration model implemented over a panel of more than 400 firms relates the probabilities of being an purchaser or a target to financial, R&D ant patent data to investigate this explanation more deeply. Results show that purchasers are firms with a lower Tobin's Q and decreasing sales, which could indicate that acquisitions are used to compensate for low internal growth prospects. Firms with a higher proportion of radical patents in their portfolio, especially in pharmaceutical and biothechnological patent classes, face a higher probability of being targeted, indicating that acquiring firms are indeed searching for innovative competencies. However, acquiring firms also present a significant absorptive capacity : their R&D investment increases in the year preceding the operation and their patent stock is larger and more diversified than for non-acquiring firms. Finally, we observe that over the last ten years of the sample period, firms have paid a greater attention to the size of the target's portfolio. |
| Keywords: | M&A, pharmaceutical, innovations, patent citations. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00331211_v1&r=com |
| By: | Matthias Walter; Astrid Cullmann |
| Abstract: | We analyze potential gains from hypothetical mergers in local public transport using the non-parametric Data Envelopment Analysis with bias corrections by means of bootstrapping. Our sample consists of 41 public transport companies from Germany's most densely populated region, North Rhine-Westphalia. We merge them into geographically meaningful, larger units that operate partially on a joint tram network. Merger gains are then decomposed into individual technical efficiency, synergy and size effects following the methodology of Bogetoft and Wang [Bogetoft, P., Wang, D., 2005. Estimating the Potential Gains from Mergers. Journal of Productivity Analysis, 23(2), 145-171]. Our empirical findings suggest that substantial gains up to 16 percent of factor inputs are present, mainly resulting from synergy effects. |
| Keywords: | Merger; Public Transport; Efficiency; Data Envelopment Analysis |
| JEL: | L92 C14 L11 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp832&r=com |
| By: | Vincent Rebeyrol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Julien Vauday (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00282331_v1&r=com |
| By: | Giammario Impullitti |
| Abstract: | The geographical distribution of R&D investment changes dramatically in the 1970s and 1980s. In the early 1970s U.S. firms are the uncontested world leaders in R&D investment in most manufacturing sectors. Later, led by Japan and Europe, foreign firms start challenging American R&D leadership in many sectors of the economy. In this period of increasing competition we also observe a substantial increase in the U.S. R&D subsidy. In a version of the multi-country quality ladder growth model I study the effects of foreign R&D competition on domestic welfare and on the optimal R&D subsidy. I build a new empirical index of international R&D rivalry that can be used to perform quantitative analysis in this type of frameworks. In a calibrated version of the model I focus on the period 1979-1991 and perform the following quantitative exercises: first, I evaluate the quantitative effects of the observed increase in foreign R&D competition on U.S. welfare. I find that the positive growth effect and the negative business-stealing effect of foreign competition on U.S. welfare substantially balance each other, and the overall welfare effect of competition is negligible - less then 1 percent of per-capita consumption. Moreover, using estimates of the effective U.S. R&D subsidy rate, I compute the distance from optimality of the observed subsidy at each level of competition. I find that international competition increases the optimal subsidy and that, surprisingly, the U.S. subsidy observed in the data is fairly close to the optimal subsidy. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdacee:15-08&r=com |
| By: | Robert M. Feinberg; Thomas A. Husted; Kara M. Reynolds |
| Abstract: | In analyzing the potential exercise of monopoly power in domestic markets, both the academic literature and U.S. antitrust authorities have acknowledged the disciplining role of competition from abroad. In this paper, we explore the extent to which this view seems to reveal itself in recent U.S. Congressional votes taken during the 108th Congress (2003-04) on four free trade agreements (FTAs). To the extent that antitrust and trade liberalization are both viewed as pro-consumer in nature, we would expect to see a positive relationship between antitrust enforcement in their legislative district and Congressional votes in support of new FTAs. We do find evidence supporting a positive relationship between state-level antitrust enforcement (measured either by absolute number of cases filed or by cases relative to the state’s economic size) and support for FTAs. |
| Keywords: | Antitrust, Trade Protection |
| JEL: | F13 L4 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:1408&r=com |