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on Industrial Competition |
| By: | Jean J., GABSZEWICZ; Joana, RESENDE |
| Abstract: | This paper analyses price competition under product differentiation when goods are defined in a two dimensional characteristic space, and consumers do not know which firm sells which quality. Equilibrium prices consist of two additive terms, which balance consumersÕ relative valuation of goodsÕ expected quality and consumersÕ preferences for variety. However the relative importance of these terms differ under vertical and horizontal dominance |
| Keywords: | product differentiation, variety, quality, uncertainty |
| JEL: | D43 D80 L15 |
| Date: | 2008–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008027&r=com |
| By: | Didier, LAUSSEL; Joana, RESENDE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)) |
| Abstract: | In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets : a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firmsÕ prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new ÔuncolonizedÕ consumers. |
| Keywords: | dynamic competition; differential games; Linear Markov Perfect equilibrium |
| JEL: | C61 L11 L13 |
| Date: | 2008–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008021&r=com |
| By: | Oliver Falck (Ifo Institute for Economic Research, CESifo and Max Planck Institute of Economics, Jna, Germany); Stephan Heblich (Max Planck Institute of Economics, Jena, Germany) |
| Abstract: | This paper takes a different perspective toward the escape entry incentive of incumbent firms to innovate. New entrants spawned from incumbents are not necessarily a threat; they can complement incumbents' production by commercializing knowledge incumbents are not willing or able to exploit. Accordingly, incumbent innovation determines exploitable knowledge externalities for spinoffs while, at the same time, spinoffs are expected to influence incumbent innovation. To overcome this problem of endogeneity, we apply an IV approach to analyze a rich industry-level dataset (1987–2000) for Germany. We find evidence that entry by spinoffs does, indeed, have a positive impact on incumbent innovation. |
| Keywords: | Innovation, Entry, Spinoff |
| JEL: | O3 L16 M13 |
| Date: | 2008–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-083&r=com |
| By: | Satyajit Chatterjee; Esteban Rossi-Hansberg |
| Abstract: | We present a theory of spinoffs in which the key ingredient is the originator’s private information concerning the quality of his new idea. Because quality is privately observed, by the standard adverse-selection logic, the market can at best offer a price that reflects the average quality of ideas sold. This gives the holders of above-average-quality ideas the incentive to spin off. We show that only workers with very good ideas decide to spin off, while workers with mediocre ideas sell them. Entrepreneurs of existing firms pay a price for the ideas sold in the market that implies zero expected profits for them. Hence, firms’ project selection is independent of firm size, which, under some additional assumptions, leads to scale-independent growth. The entry and growth process of firms leads to invariant firm-size distributions that resemble the ones for the U.S. economy and most of its individual industries. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-26&r=com |
| By: | Stephen Davies (Centre for Competition Policy, University of East Anglia); Matthew Olczak (Centre for Competition Policy, University of East Anglia) |
| Abstract: | It is conventional wisdom that collusion is more likely the fewer firms there are in a market and the more symmetric they are. This is often theoretically justified in terms of a repeated non-cooperative game. Although that model fits more easily with tacit than overt collusion, the impression sometimes given is that ‘one model fits all’. Moreover, the empirical literature offers few stylised facts on the most simple of questions – how few are few and how symmetric is symmetric? This paper attempts to fill this gap while also exploring the interface of tacit and overt collusion, albeit in an indirect way. First, it identifies the empirical model of tacit collusion that the European Commission appears to have employed in coordinated effects merger cases – apparently only fairly symmetric duopolies fit the bill. Second, it shows that, intriguingly, the same story emerges from the quite different experimental literature on tacit collusion. This offers a stark contrast with the findings for a sample of prosecuted cartels; on average, these involve six members (often more) and size asymmetries among members are often considerable. The indirect nature of this ‘evidence’ cautions against definitive conclusions; nevertheless, the contrast offers little comfort for those who believe that the same model does, more or less, fit all. |
| Keywords: | tacit collusion, collective dominance, coordinated effects, cartels, European mergers, asymmetries, firm numbers |
| JEL: | L13 L41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-32&r=com |
| By: | Xavier Boutin (INSEE (D3E-MSE) and CREST-LEI); Lionel Janin (DGTPE and CREST-LEI) |
| Abstract: | During the 80s, several empirical studies have shown a positive correlation between concentration, prices and profits. It is well known that these estimates all suffer from simultaneity bias: market structure and prices are affected by common factors, some of which are not observable, which rules out any causal interpretation of cross-sectional correlations. Mergers are an interesting instrument to identify the (static) impact of concentration on prices, since they induce breaks in strategic interactions between actors. The few ex post studies on mergers that are currently available are difficult to generalize, because they pertain to specific markets. This study looks more systematically to selling prices in 63 sectors observed between 1989 and 2002. The approach that has been chosen is a difference in differences approach, applied to price movements around mergers. The rate of inflation in a sector where a merger has occurred is compared to a counterfactual. In a simple framework, in line with previous studies (McCabe 2002), this counterfactual would be built as the mean of inflation rates in other sectors. This paper focuses on more relevant estimates, provided by a factor model. This methodology allows tracking the profile of prices around mergers. We separate mergers between French firms and mergers between other European firms controlled by European authorities (and thus assumed to have affected the common market). We also distinguish mergers having led to an in-depth inquiry by competition authorities (« phase 2 ») and those benefiting from a shorter procedure (« phase 1 »). We observe an acceleration of price movements around the most important of French mergers, but not for the ones authorized under phase 1. We also observe a break in price movements for mergers between foreign firms examined by the European Commission, generally in the other direction. Dans les années 80, de nombreuses études empiriques ont établi une corrélation positive entre concentration, prix et profit. Ces estimations souffrent cependant de biais de simultanéité : la structure des marchés et les prix découlent de caractéristiques identiques, dont toutes ne sont pas observables. La corrélation en coupe ne peut donc être interprétée de manière causale. Les fusions, qui induisent une rupture dans les interactions stratégiques, constituent des instruments intéressants pour identifier l’impact (statique) de la concentration sur les prix. Les rares études ex post sur les fusions, portant sur des marchés particuliers, sont difficilement généralisables. Cette étude s’intéresse aux prix de vente de 63 secteurs entre 1989 et 2002. L’approche choisie ici est une analyse en différences de différences des mouvements de prix de vente autour des fusions. L’inflation d’un secteur dans lequel s’est produit une fusion est comparée à une inflation « contrefactuelle ». Une approche simple retenue par les travaux antérieurs (McCabe 2002) consiste à calculer la moyenne des inflations des autres secteurs. Dans ce papier, une structure plus riche est utilisée, sous la forme d’un modèle à facteurs. Cette méthodologie permet de tracer le profil de prix autour des fusions. On distingue les fusions entre entreprises françaises des fusions entre d’autres entreprises européennes examinées par les autorités communautaires au titre de l’affectation du marché commun. Par ailleurs, on distingue également les fusions qui ont fait l’objet d’une analyse approfondie de la part des autorités de concurrence (phase 2) de celles autorisées au terme d’une procédure plus courte (phase 1). L’étude met en évidence une accélération des prix pour les fusions françaises les plus importantes, mais pas pour celles autorisées en phase 1. On observe également une rupture de pente, généralement de sens opposé, pour les fusions entre entreprises étrangères traitées par la Commission européenne. |
| Keywords: | mergers, prices, factor models / fusions, prix, modèles à facteurs |
| JEL: | G34 L11 C53 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpdeee:2008-08&r=com |
| By: | Yassine LEFOUILI; Catherine ROUX |
| Abstract: | We examine the effect of the Amnesty Plus policy on firms' incentives to engage in cartel activities. Amnesty Plus is a proactive antitrust enforcement strategy aimed at attracting amnesty applications by encouraging firms already convicted in one market to report collusive agreements in other markets. It has been heavily advertised that Amnesty Plus weakens cartel stability. We show to the contrary that Amnesty Plus does not always have this desirable effect. Only under specific conditions, Amnesty Plus deters a cartel which would have been sustainable under an antitrust policy without Amnesty Plus. Otherwise, Amnesty Plus is either neutral or even stabilizes a cartel. We also show that firms can exploit their multimarket contact to reduce the effectiveness of the Amnesty Plus policy. |
| Keywords: | Amnesty Plus; Leniency Program; Multimarket Contact; Antitrust Policy |
| JEL: | K21 K42 L41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:08.05&r=com |
| By: | Flavia Roldán |
| Abstract: | This paper studies how the presence of an antitrust authority affects market-sharing agreements made by firms in oligopolistic markets. These agreements prevent firms from entering each other´s market. The set of market-sharing agreements defines a collusive network, which is under suspicion by antitrust authorities. This paper shows that, from the firm´s point of view, the probability of being caught is endogenous and depends on the agreements each firm has signed. Stable collusive networks can be decomposed into a set of isolated firms and complete alliances of different sizes. While in the absence of the antitrust authority, a network is stable if its alliances are large enough, when the antitrust authority is considered, the network is stability depends on the network configuration as a whole. Antitrust laws may have a pro-competitive effect as they give Firms in large alliances more incentives to cut their agreements at once. |
| Keywords: | Market-sharing, Economic networks, Antitrust authority, Oligopoly |
| JEL: | D43 K21 L41 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we085024&r=com |
| By: | DE FEO, Giuseppe (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Abstract: | In the theoretical literature, strong arguments have been provided in support of the efficiency defense in antitrust merger policy. One of the most often cited results is due to Williamson (1968) that shows how relatively small reduction in cost could offset the deadweight loss of a large price increase. Furthermore, Salant et al. (1983) demonstrate that (not for monopoly) mergers are unprofitable absent efficiency gains. The general result, drawn in a Cournot framework by Farrell and Shapiro (1990), is that (not too large) mergers that are profitable are always welfare improving. In the present work we challenge the conclusions of this literature in two aspects. First, we show that Williamson's results underestimate the welfare loss due to a price increase and overestimate the effect of efficiency gains. Then, we prove that the conditions for welfare improving mergers defined by Farrell and Shapiro (1990) hold true only when consumers are adversely affected. This seems an argument to disregard their policy prescriptions when antitrust authorities are more "consumers-oriented". In this respect, we provide a necessary and sufficient condition for a consumer surplus improving merger: in a two firm merger, efficiency gains must be larger than the pre-merger average markup. |
| Keywords: | mergers, efficiency gains, Cournot oligopoly. |
| JEL: | D43 L11 L22 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvco:2008005&r=com |
| By: | Fabbri, Daniela; Klapper, Leora |
| Abstract: | This paper studies the decision of firms to extend trade credit to customers and its relation with their financing decisions. The authors use a novel firm-level database of Chinese SMEs with unique information on market power in both output and input markets and on the amount, terms, and payment history of trade credit simultaneously extended to customers (accounts receivable) and received from suppliers (accounts payable). The analysis shows that suppliers with relatively weaker market power are more likely to extend trade credit and have a larger share of goods sold on credit. Examination of the importance of financial constraints reveals that access to bank financing and profitability are not significantly related to trade credit supply. Rather, firms that receive trade credit from their own suppliers are more likely to extend trade credit to their customers, and to"match maturity"between the contract terms of payables and receivables. This matching practice is more likely used when firms face strong competition in the product market (relative to their customers), and enjoy strong market power in the input market (relative to their suppliers). These results highlight the importance of supply chain financing for market competition and risk management in credit constrained firms. |
| Keywords: | Access to Finance,Bankruptcy and Resolution of Financial Distress,Debt Markets,Economic Theory&Research,Banks&Banking Reform |
| Date: | 2008–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4754&r=com |
| By: | Ana, MAULEON; Vincent, VANNETELBOSCH (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Cecilia, VERGARI |
| Abstract: | What is the effect of product market integration on the market equilibrium in the presence of international externalities in consumption ? To address this question, we set up a spatial two-country model and we find that the economic forces at work may have an ambiguous effect on prices. |
| Keywords: | compatibility; horizontal differentiation; network effect |
| JEL: | L13 L15 |
| Date: | 2008–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008018&r=com |
| By: | Filomena, GARCIA; Cecilia, VERGARI (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)) |
| Abstract: | We analyse firmsÕ incentives to provide two-way compatibility between two network goods with different intrinsic qualities. We study how the relative importance of vertical differentiation with respect to the network effect influences the price competition as well as the compatibility choice. The final degree of compatibility allows firms to manipulate the overall differentiation. Under weak network effect, full compatibility may arise : the low quality firm has higher incentives to offer it in order to prevent the rival from dominating the market. Under strong network effect we observe multiple equilibria for consumersÕ demand. However, in any equilibrium of the full game, coordination takes place on the high quality good which, we assume, always maintains its overall quality dominance. |
| Keywords: | compatibility, vertical differentiation, network effect |
| JEL: | L13 L15 |
| Date: | 2008–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008012&r=com |
| By: | Sjaak Hurkens (Institute for Economic Analysis (CSIC)); Doh-Shin Jeon (Department of Economics and Business, Universitat Pompeu Fabra) |
| Abstract: | We study how access pricing affects network competition when consumers' subscription demand is elastic and networks compete with non-linear prices and can use termination-based price discrimination. In the case of a fixed per minute termination charge, our model generalizes the results of Gans and King (2001), Dessein (2003) and Calzada and Valletti (2008). We show that a reduction of the termination charge below cost has two opposing effects: it softens competition and it helps to internalize network externalities. The former reduces consumer surplus while the latter increases it. Firms always prefer termination charge below cost, either to soften competition or to internalize the network effect. The regulator will favor termination below cost only when this boosts market penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase subscription without distorting call volumes. Furthermore, we show that an informed regulator can even implement the first-best outcome by using this approach. |
| Keywords: | Networks, Access Pricing, Interconnection, Regulation, Telecommunications |
| JEL: | D4 K23 L51 L96 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0841&r=com |
| By: | Bask, Mikael (Department of Economics, Stanford University); Widerberg, Anna (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | By using a novel approach in this paper,(lambda,sigma²)-analysis, we have found that electricity prices most of the time have increased in stability and decreased in volatility when the Nordic power market has expanded and the degree of competition has increased. That electricity prices at Nord Pool have been generated by a stochastic dynamic system that most often has become more stable during the step-wise integration of the Nordic power market means that this market is less sensitive to shocks after the integration process than it was before this process. This is good news. |
| Keywords: | Electricity Prices; GARCH Models; Lyapunov Exponents; Market Structure; Reconstructed Dynamics; Stability; Volatility |
| JEL: | C14 C22 D43 |
| Date: | 2008–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0327&r=com |
| By: | Janssen, Matthias; Wobben, Magnus |
| Abstract: | The aim of this paper is to develop a methodology for measuring the exercise of potential market power in liberalized electricity markets. We therefore investigate producer behavior in the context of electricity pricing with respect to fundamental time-dependent marginal cost (TMC), i.e. CO2- and fuel cost. In doing so, we do not - in contrast to most current approaches to market power investigation - rely on an estimate of the entire generation cost, which inevitably suffers from the lack of appropriate available data. Applying an analytical model of a day-ahead electricity market, we derive work-on rates, which provide information about the impact of TMC variations on electricity prices in the market constellations of perfect competition, quasi-monopoly and monopoly. Comparing these model-based work-on rates with actual work-on rates, estimated by an adjusted first-differences regression model of German power prices on the cost for hard coal, natural gas and emission allowances, we find evidence of the exercise of market power in the period 2006 to 2008. However, our results reveal that German market competitiveness increases marginally. We confirm our results by simulating a TMC-driven diffusion model of futures power prices estimated by maximum-likelihood. |
| Keywords: | energy; electricity; market power analysis; spot-futuresprice relation |
| JEL: | C51 L13 L94 D43 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11400&r=com |
| By: | Fridolfsson, Sven-Olof (Research Institute of Industrial Economics (IFN)); Tangerås, Thomas (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We review the recent empirical research concerning market power on the Nordic wholesale market for electricity, Nord Pool. There is no evidence of blatant and systematic exploitation of system level market power on Nord Pool. However, generation companies seem from time to time able to take advantage of capacity constraints in transmission to wield regional market power. Market power can manifest itself in a number of ways which have so far escaped empirical scrutiny. We discuss investment incentives, vertical integration and buyer power, as well as withholding of base-load (nuclear) capacity. |
| Keywords: | Electricity Markets; Deregulation; Market Power; Hydro Power; Transmission Constraints |
| JEL: | L13 L94 Q41 |
| Date: | 2008–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0773&r=com |
| By: | Jean J. GABSZEWICZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Didier, LAUSSEL; Ornella, TAROLLA |
| Abstract: | In this paper we address the following question : is it more profitable, for an entrant in a differentiated market, to acquire an existing firm than to compete ? We illustrate the answer by considering competition in the banking sector |
| Keywords: | vertical differentiation; entry; banking competition |
| JEL: | G34 L13 L22 |
| Date: | 2008–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008019&r=com |
| By: | Nicholas Economides (Stern School of Business, New York University) |
| Abstract: | We discuss the current structure of card networks that facilitate transactions between merchants and consumers. We find that presently fees for this intermediation are considerably higher than costs. This is facilitated by rules imposed by the card networks on the merchants that do not allow merchants to steer competition to cards that have lower fees. It has also been facilitated by the requirement that a merchant has to accept all cards of the same network (honor all cards rule) -- recently abolished in the US, as well as by the fact that the networks set the maximum interface fee between issuing and acquiring banks. We propose the abolition of anti-steering rules so that merchants are able to pass on card holders the costs of the card they use. This will facilitate inter- and intra-network competition and will improve the competitiveness and efficiency of the market. Classification-L13, L41, L42, L50, L89 |
| Keywords: | card networks, payment systems, anti-steering, surcharge, discrimination, oligopoly, collusion, MasterCard, Visa, American Express, credit card, debit card |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0839&r=com |
| By: | Alberto Gaggero (Department of Economics, University of Essex.); Claudio A. Piga (Dept of Economics, Loughborough University) |
| Abstract: | We study the relationship between pricing and market structure on the routes connecting the UK and the Republic of Ireland. Because in 2007 the European Commission prohibited the takeover of Aer Lingus by Ryanair, the analysis focuses on their pricing strategies in particular. We use an original dataset of fares posted on-line, which allows to control for the fares' intertemporal pattern for each specific flight and each carrier's specific yield management system. Our evidence supports the European Commission's view that the elimination of a competitor in the Irish airline market is likely to have harmful consequences for consumers. |
| Keywords: | merger policy; consumers; anti-trust. |
| JEL: | L11 D61 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2008_12&r=com |
| By: | Alexia Gaudeul (Centre for Competition Policy, University of East Anglia) |
| Abstract: | I consider a Vickrey-Salop model of spatial product differentiation with quasi-linear utility functions and contrast two modes of production, the proprietary model where entrepreneurs sell software to the users, and the open source model where users participate in software development. I show that the OS model of production may be more efficient from the point of view of welfare that the proprietary model, but that an OS industry is vulnerable to entry by entrepreneurs while a proprietary industry can resist entry by OS projects. A mixed industry where OS and proprietary development methods coexist may exhibit large OS projects cohabiting with more specialized proprietary projects, and is more efficient than the proprietary model of production from the point of view of welfare. |
| Keywords: | open source, proprietary, software industry, copyright, non-profit organization, mixed market, welfare, spatial product differentiation |
| JEL: | D23 H44 L17 L22 L86 O34 O38 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-31&r=com |
| By: | Ruiz-Porras, Antonio |
| Abstract: | We analyze the effects of leadership in banking when oligopolistic competition exists in the market of deposits. We assess such effects by comparing the performance of banking systems that only differ on their strategic interactions. Specifically, we compare the outcomes associated to strategies of the Cournot and Stackelberg types (symmetric competition and leader-follower strategies). Our main findings suggest that there are private and social benefits associated to leadership. The results suggest that it induces high levels of deposits, of returns and of consumption for long-term depositors. Moreover, leadership enhances financial stability and efficiency in banking. |
| Keywords: | banks; leadership; deposits; benefits; stability |
| JEL: | D43 D92 G21 |
| Date: | 2008–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11351&r=com |
| By: | GABSZEWICZ, Jean J. (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); ZANAJ, Skerdilajda |
| Abstract: | In this paper, we propose an example of successive oligopolies where the downstream firms share the same decreasing returns technology of the Cobb-Douglas type. We stress the differences between the conclusions obtained under this assumption and those resulting from the traditional example considered in the literature, namely, a constant returns technology. |
| Keywords: | successive oligopolies, vertical integration, technology. |
| JEL: | D43 L1 L22 L42 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvco:2008050&r=com |
| By: | Carlo, CAPUANO; Giuseppe, DE FEO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)) |
| Abstract: | The purpose of this paper is to investigate the effect of privatization in a mixed duopoly, where a private firm complete in quantities with a welfare-maximizing public firm. We consider two inefficiencies of the public sector : a possible cost inefficiency and an allocative inefficiency due to the distortionary effect of taxation (shadow cost of public funds). Furthermore, we analyze the effect of privatization on the timing of competition by endogenezing the determiantion of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games using the model developed by Hamilton and Slutsky (1990). The latter is especially relevant for the analysis of privatization, given that results and policy prescription emerged in the literature crucially rely on the type of competition assumed. We show that privatization has generally the effect of shifting from Stackelberg to Cournot equilibrium and that, absent efficiency gains privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred. |
| Keywords: | mixed oligopoly, privatization, endogenous timing, distortionary taxes |
| JEL: | H2 H42 L13 L32 L33 |
| Date: | 2008–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008015&r=com |
| By: | Bertrand, Olivier (Graduate School of Management of St Petersburg State University and Toulouse School of Economics); Nilsson Hakkala, Katariina (Helsinki School of Economics and Government Institute for Economic Research (VATT)); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisition-investment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model – that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs – are consistent with the data. |
| Keywords: | FDI; M&A; Multinational firms; R&D |
| JEL: | F23 L10 L20 O30 |
| Date: | 2008–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0772&r=com |
| By: | Khemraj, Tarron; Pasha, Sukrishnalall |
| Abstract: | This paper explores the influence of trader (or cambio) market power in determining the foreign exchange market bid-ask spread. In particular, it presents a theoretical model that incorporates the notion of oligopolistic power into the foreign exchange market. The econometric analysis substantiates the existence of oligopolistic trader market power in determining the spread. Moreover, the results confirm the prediction of standard market microstructure theory that volatility exerts a positive effect on spread. We also uncovered a positive relationship between liquidity (the quantity of foreign exchange traded) and spread, a result which differs from the existing literature. We interpret this finding to mean that oligopolistic traders set the mark-up exchange rate above where the purely competitive rate would have been so as to generate a surplus of US$ that is then hoarded. The econometric exercise utilizes a unique data set of trading volumes and buying/selling exchange rates for each cambio from January 2000 to December 2007. |
| Keywords: | bid-ask spread; foreign exchange market; GLS |
| JEL: | O11 F00 N16 D43 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11422&r=com |
| By: | Charness, Gary (University of California, Santa Barbara); Kuhn, Peter J. (University of California, Santa Barbara); Villeval, Marie-Claire (CNRS, GATE) |
| Abstract: | The 'ratchet effect' refers to a situation where a principal uses private information that is revealed by an agent's early actions to the agent's later disadvantage, in a context where binding multi-period contracts are not enforceable. In a simple, context-rich environment, we experimentally study the robustness of the ratchet effect to the introduction of ex post competition for principals or agents. While we do observe substantial and significant ratchet effects in the baseline (no competition) case of our model, we find that ratchet behavior is nearly eliminated by labor-market competition; interestingly this is true regardless of whether market conditions favor principals or agents. |
| Keywords: | ratchet effect, competition, experiment, private information, labor markets |
| JEL: | C91 D23 D82 J24 L14 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3784&r=com |