nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒12‒07
nine papers chosen by
Russell Pittman
US Department of Justice

  1. Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets By Friberg, Richard; Norbäck, Pehr-Johan; Persson, Lars
  2. Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process By Fabrizi, Simona; Lippert, Steffen; Norbäck, Peh; Persson, Lars
  3. Downstream labeling and upstream competition By Bonroy, O.; Lemarie, S.
  4. The Transmission of Price Trends from Consumers to Producers and Tests of Market Power By Lkassbi, Driss; West, Gale E.; Clark, J. Stephen
  5. Margin Squeeze in Fixed-Network Telephony Markets – competitive or anticompetitive? By Wolfgang Briglauer; Georg Götz; Anton Schwarz
  6. Do we (still) need to regulate fixed network retail markets? By Wolfgang Briglauer; Georg Götz; Anton Schwarz
  7. Mutual Fund Competition in the Presence of Dynamic Flows By Michèle Breton; Julien Hugonnier; Tarek Masmoudi
  8. Network embeddedness, specialization choices and performance in investment banking industry By Farina, Vincenzo
  9. Anti-Dumping Regulations: Anti-Competitive and Anti-Export By Collie, David R.; Le, Vo Phuong Mai

  1. By: Friberg, Richard (Stockholm School of Economics); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: We propose a model of investments prior to corporate ownership changes. We derive conditions under which the selling of a firm triggers overinvestment by both the seller and the buyer prior to the asset transfer. In a setting with Cournot competition, we show that these incentives can drive the consumer prices in a post-acquisition duopoly below those of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.
    Keywords: Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger Evaluations
    JEL: L13 L40 L66
    Date: 2008–11–13
  2. By: Fabrizi, Simona (Massey University Auckland); Lippert, Steffen (Massey University Auckland); Norbäck, Peh (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: In this paper we construct a model in which entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We show that as exacerbated development by better-informed venture-backed rms is used as a signal to enhance the sale price of developed innovations, venture capitalists must be sufciently more ecient in selecting innovative projects than incumbents in order to exist in equilibrium. Otherwise, incumbents undertake early preemptive, acquisitions to prevent the venture-backed rms' signaling-driven investment, despite the risk of buying a bad innovation. We nally show at what point the presence of active venture capitalists increases the incentives for entrepreneurial innovations.
    Keywords: Venture Capitalists; Innovation; Entrepreneurs; Signaling; Development;
    JEL: C70 D21 D82 G24 L20 M13 O30
    Date: 2008–11–06
  3. By: Bonroy, O.; Lemarie, S.
    Abstract: This paper analyses the impact of labeling in a context where the products come from a supply chain. We consider a case where there is an information problem about product quality in the downstream part of the chain, but not in the upstream part. We show that the implementation of a label to solve this information problem affects competition in the upstream part of the chain. In particular, competition may be softened up to a point where both the high- and the low-quality upstream suppliers benefit from labeling while all the intermediary producers or final consumers lose from labeling. This result is established on the basis of a simple model with two vertically related markets (a competitive downstream market which is supplied by an upstream duopoly) where the quality of the downstream output is determined by the quality of the upstream input.
    JEL: L15 L50
    Date: 2008
  4. By: Lkassbi, Driss; West, Gale E.; Clark, J. Stephen
    Abstract: This study examines the competitiveness of four Canadian agricultural industries (eggs, milk, chicken and turkey) using a general equilibrium farm to retail pricing model developed by Wohlgenant (1989). The model generates retail and farm pricing equations that are estimated using maximum likelihood developed by Johansen (1992). The results indicate that in all cases, long-run constant returns is rejected, indicating market power within the Canadian retail to farm marketing sector. The model also finds more cointegrating vectors than predicted by theory, also inconsistent with competitive markets. Results are based on commercial disappearance as a proxy for consumer demand and therefore confounding between uncompetitive markets and quality differences may be indicated. Less ambiguous results would be obtained if consumer expenditures rather than commercial disappearance data were available. Still, results are rather emphatic in rejection of competitive markets in food markets in Canada. More competitive markets are indicated in the United States using similar methods.
    Keywords: Market power, food processing, cointegration, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, D41, L66, Q13,
    Date: 2008–01
  5. By: Wolfgang Briglauer (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division); Georg Götz (Justus-Liebig-University Gießen, Department of Economics); Anton Schwarz (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division)
    Abstract: This paper looks at the effects of different forms of wholesale and retail regulation on retail competition in fixed network telephony markets. We explicitly model two asymmetries between the incumbent operator and the entrant: (i) While the incumbent has zero marginal costs, the entrant has the wholesale access charge as (positive) marginal costs; (ii) While the incumbent is setting a two-part tariff at the retail level (fixed fee and calls price), the entrant can only set a linear price for calls. Competition from other infrastructures such as mobile telephony or cable is modelled as an ‘outside opportunity’ for consumers. We find that a horizontally differentiated entrant with market power may be subject to a margin squeeze due to double marginalization but will never be completely foreclosed. Entrants without market power might be subject to a margin squeeze if the wholesale access price is set at average costs and competitive pressure from other infrastructures increases. We argue that a wholesale price regulation at average costs is not optimal in such a situation and discuss retail minus and deregulation as potential alternatives.
    Keywords: access regulation, foreclosure, margin squeeze, telecommunications, fixed networks
    JEL: L12 L41 L42 L50 L96
    Date: 2008
  6. By: Wolfgang Briglauer (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division); Georg Götz (Justus-Liebig-University Gießen, Department of Economics); Anton Schwarz (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division)
    Abstract: In the beginning of fixed network liberalisation in Europe in the late 1990s, the main concern of regulators was to lower calls prices. This was done by introducing wholesale regulation and promoting service based competition. Some years later, the concern of some regulators turned from too high calls prices to too low calls prices which might ‘squeeze’ entrants out of the market. We look at a simple model in which this development is explained by increasing competitive pressure from an ‘outside opportunity’, e.g. mobile telephony. We conclude that a margin squeeze is not necessarily used by the incumbent as a device to drive competitors out of the market and increase market power but can also result from increased inter-model competition. If this is the case, we argue that regulators should consider alternatives to cost oriented access prices such as retail minus or complete deregulation.
    Keywords: access regulation, vertical integration, foreclosure, price squeeze, telecommunications, fixed networks
    JEL: L12 L41 L42 L50 L96
    Date: 2008
  7. By: Michèle Breton (CREF, GERAD, and HEC Montr´eal); Julien Hugonnier (University of Lausanne and Swiss Finance Institute); Tarek Masmoudi (Caisse de d´epˆot et placement du Qu´ebec (CDPQ))
    Abstract: This paper analyzes competition between mutual funds in a multiple funds version of the model of Hugonnier and Kaniel [18]. We characterize the set of equilibria for this delegated portfolio management game and show that there exists a unique Pareto optimal equilibrium. The main result of this paper shows that the funds cannot differentiate themselves through portfolio choice in the sense that they should offer the same risk/return tradeoff in equilibrium. This result brings theoretical support to the findings of recent empirical studies on the importance of media coverage and marketing in the mutual funds industry.
    Keywords: portfolio management, asset-based management fees, mutual funds, dynamic flows, stochastic differential game.
    JEL: G11 G12 C61
    Date: 2008–09
  8. By: Farina, Vincenzo
    Abstract: The idea that network structure and embeddedness affect firms’ competitive behavior and performance is not new both in network literature and in strategic management literature. This study recognizes that the possibility to fully exploit network opportunities is depending on firm specialization choices. By analyzing network embeddedness within the European investment banking industry, I find that banks enhance performance by having a central position in their network and that specialization reduces bank’s benefits of having a central position in the network.
    Keywords: Investment Banking; IPOs; Underwriting syndicates; Social network analysis.
    JEL: G24 M10
    Date: 2008
  9. By: Collie, David R. (Cardiff Business School); Le, Vo Phuong Mai (Cardiff Business School)
    Abstract: In a Bertrand duopoly model, it is shown that an anti-dumping regulation can be strategically exploited by the domestic firm to reduce the degree of competition in the domestic market. The domestic firm commits not to export to the foreign market which gives the foreign firm a monopoly in its own market. As a result the foreign firm will increase its price allowing the domestic firm to increase its price and its profits. If the products are sufficiently close substitutes then the higher profits in the domestic market are large enough to compensate for the loss of profits on exports.
    Keywords: anti-dumping regulations; Bertrand oligopoly; strategic behaviour
    JEL: F13 L13
    Date: 2008–11

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