nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒02‒07
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Should R&D Champions be Protected from Foreign Takeovers? By Katariina Nilsson Hakkala; Bertrand; Norbäck Olivier; Persson Pehr-Johan; Lars
  2. Power-Law and Log-Normal Distributions in Firm Size Displacement Data By Ishikawa, Atushi
  3. Imitators and Optimizers in Cournot Oligopoly By Schipper, Burkhard
  4. Corporate Espionage By Pascal Billand; Christophe Bravard; Subhadip Chakrabarti; Sudipta Sarangi
  5. A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel By Draganska, Michaela; Klapper, Daniel; Villas-Boas, Sofia B.
  6. Non-cooperative Game Theory By Bonanno, Giacomo
  7. Prices and Profits in Dominant Firm Adjudication By Scherer, F. M.
  8. Relationship Lending and Firm Innovativeness By Giannetti, C.
  9. Holiday Price Rigidity and Cost of Price Adjustment By Levy, Daniel; Müller, Georg; Chen, Allan (Haipeng); Bergen, Mark; Dutta, Shantanu
  10. Innovation – source to obtain the competitive advantage in the global economy By Sipos, Gabriela Lucia
  11. Managers and Students Playing Cournot: Experimental Evidence from Malaysia By Waichmann, Israel; Requate, Tilman; Siang, Ch'ng Kean

  1. By: Katariina Nilsson Hakkala; Bertrand; Norbäck Olivier; Persson Pehr-Johan; Lars
    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 acquisitioninvestment-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. JEL classification: F23, L10, L20, O30
    Keywords: FDI, M&A, R&D, Multinational Firms
    Date: 2008–11–07
  2. By: Ishikawa, Atushi
    Abstract: We have shown that firm size signed displacement data follow not only power-law in the large scale region but also the log-normal distribution in the middle scale one. In the analyses, we employ three databases: high-income data, high-sales data and positive-profits data of Japanese firms. It is particularly worth noting that the growth rate distributions of the firm size displacement have no wide tail which is observed in assets, sales of firms, the number of employees and personal income data. An extended-Gibrat’s law is also found in the growth rate distributions. This leads the power-law and the log-normal distributions of the firm size displacement under the detailed balance.
    Keywords: Econophysics, firm size displacement distribution, Pareto’s law, log-normal distribution, (non-)Gibrat’s law, detailed balance
    JEL: D30 D31 D39
    Date: 2008
  3. By: Schipper, Burkhard (U of California, Davis)
    Abstract: We analyze a symmetric n-firm Cournot oligopoly with a heterogeneous population of optimizers and imitators. Imitators mimic the output decision of the most successful firms of the previous round a la Vega-Redondo (1997). Optimizers play a myopic best response to the opponents' previous output. Firms are allowed to make mistakes and deviate from their decision rules with a small probability. Applying stochastic stability analysis, we find that the long run distribution converges to a recurrent set of states in which imitators are better off than are optimizers. This finding appears to be robust even when optimizers are more sophisticated. It suggests that imitators drive optimizers out of the market contradicting a fundamental conjecture by Friedman (1953).
    JEL: C72
    Date: 2008–02
  4. By: Pascal Billand; Christophe Bravard; Subhadip Chakrabarti; Sudipta Sarangi
    Keywords: Oligopoly, multimarket, networks
    JEL: C70 L13 L20
    Date: 2009
  5. By: Draganska, Michaela (Stanford U); Klapper, Daniel (Johann Wolfgang Goethe-Universitat Frankfurt); Villas-Boas, Sofia B. (U of California, Berkeley)
    Abstract: This research aims to provide insights into the determinants of channel profitability and the relative power in the channel by considering consumer demand and the interactions between manufacturers and retailers in an equilibrium model. We use the Nash bargaining solution to determine wholesale prices and thus how margins are split in the channel. Equilibrium margins are a function of demand primitives and of retailer and manufacturer bargaining power. Bargaining power is itself a function of exogenous retail and manufacturer characteristics. The parties' bargaining positions are determined endogenously from the estimated substitution patterns on the demand side. The more they have to lose in a negotiation relative to an outside option, the weaker the bargaining position. We use the proposed bargaining model to investigate the role of the three main factors that have been blamed for the power shift from manufacturers to retailers in recent years (firm size increases, store brand introductions, and service level differentiation). In our empirical analysis of the German market for coffee, we find that bargaining power varies among the different manufacturer- retailer pairs. This result suggests that bargaining power is not an inherent characteristic of a firm but rather depends on the negotiation partner. We are able to confirm empirically previous theoretical findings that there can be cases where the slice of the pie that goes to one of the channel members may decrease but the overall pie increases and compensates for the smaller share of profits.
    Date: 2008–09
  6. By: Bonanno, Giacomo (U of California, Davis)
    Abstract: This is the first draft of the entry “Game Theory” to appear in the Sage Handbook of the Philosophy of Social Science (edited by Ian Jarvie & Jesús Zamora Bonilla), Part III, Chapter 16.
    Date: 2008–08
  7. By: Scherer, F. M. (Harvard U)
    Abstract: Written for a conference at the University of Lisbon, this paper analyzes policies toward prices and profits in competition policy actions targeting dominant or monopolistic enterprises. Its motivation came from dilemmas posed by the European Commission's recent actions with respect to the Microsoft Corporation. The paper traces reasons why competition policy enforcers have been reluctant to assess the reasonableness of prices and profits and to prescribe changes in price levels. It identifies cases in which such oversight is essential for effective policy implementation. Drawing upon the Microsoft experience, it asks whether governmental intervention with respect to intellectual property licenses and the royalties they carry jeopardizes technological progress. An optimistic conclusion is reached.
    Date: 2008–10
  8. By: Giannetti, C. (Tilburg University, Center for Economic Research)
    Abstract: This study investigates the effects of relationship lending on firm innovativeness using a panel of Italian manufacturing firms. In order to disentangle the impact of bank ties on the discovery phase from that in the introduction phase of new technologies, the analysis proceeds in two steps, estimating two distinct equations for each phase. As there are conflicting theoretical predictions on the effects of the various sources of funding in the different stages of the innovative process, this study provides results for small and high-tech firms, so as to control for firm heterogeneity, relying on both cross-section and panel data techniques. Results suggest that for small firms, banks do not carry out a sophisticated intervention at the stage of development of new technologies, playing their traditional role of financing investments of constrained firms. Differently, relationship banks do play an important role in both phases for high-tech firms.
    Keywords: Credit relationship;external financing;bank competition.
    JEL: C34 G21 O31
    Date: 2009
  9. By: Levy, Daniel; Müller, Georg; Chen, Allan (Haipeng); Bergen, Mark; Dutta, Shantanu
    Abstract: The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers’ questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.
    Keywords: Price Rigidity; Sticky Price; Rigid Price; Cost of Price Adjustment; Menu Cost; Holiday Period; Asymmetric Price Adjustment; Monetary Policy
    JEL: L16 M31 E12 L11 E31 E52 E50 M21
    Date: 2008–05–06
  10. By: Sipos, Gabriela Lucia
    Abstract: A strong motivation to replace the comparative advantage theory with the competitive advantage theory is given by the significant change of the present economic conditions comparing with the old conditions that inspired the competitive advantage issues. The dynamic character of the market competition and the fact that, in the present, the competitiveness is located to enterprise’s level and not to the level of the national economy are some important argues that sustain the necessity and the opportunity to move the economic thinking from the comparative advantage theory to the competitive advantage theory. In the past, the comparative advantage of an economy was given by the natural resources, by the geographical position or by the specific features of products or services. Nowadays the competitive advantage is created through innovation by all its forms.
    Keywords: innovation; comparative advantage; competitive advantage
    JEL: O32
    Date: 2008–04
  11. By: Waichmann, Israel; Requate, Tilman; Siang, Ch'ng Kean
    Abstract: We report results from a Cournot triopoly experiment with different subject pools: German students, Malaysian students, and Malaysian managers. While German students play Nash, we reject the hypothesis that both Malaysian students and managers select the Nash quantity. Moreover, Malaysian managers perform significantly less competitively than Malaysian students. Finally, the affect of gender is opposite for German and Malaysian subjects.
    Keywords: artefactual field experiment, subject pools, Cournot oligopoly, managers, non-cooperative behavior
    JEL: C72 C93 D21 D43 L13
    Date: 2008

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