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on Industrial Competition |
| By: | Jonathan Vogel |
| Abstract: | In this paper we present and solve a three-stage game of entry, location, and pricing in a spatial price discrimination framework with arbitrarily many heterogeneous firms. We provide a unique characterization of all pure undominated strategy SPNE without imposing restrictions on the distribution of marginal costs or the allocation of transportation costs between firms and consumers. |
| JEL: | L13 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14978&r=com |
| By: | Berg Anita H.J. van den; Herings P. Jean-Jacques; Peters Hans J.M. (METEOR) |
| Abstract: | We analyze strategic firm behavior in settings where the production stage is followed by several periods during which only sales take place. We analyze the dynamics of the market structure, the development of prices and sales over time, and the implications for profits and consumer surplus. Two specific settings are analyzed. In the first, a firm can commit up-front to a sales strategy that does not depend on the actual sales of its competitor. In this case there is a unique Nash equilibrium and price increases over time. In the second setting,there is no commitment and firms can adjust their sales in response to observed supply of their competitor in the previous period. It is shown that in this case a subgame perfect Nash equilibrium does not always exist. Equilibria can have surprising features. For some parameter constellations, price may decrease over time. It is also possible that the firm increases its pro t by destroying some of its production. When firms have equal size, the equilibrium outcome is the same in both the commitment and the non-commitment setting. In general, the setting without commitment is bene cial to the larger firm, whereas the setting with commitment leads to higher pro ts for the smaller firm. |
| Keywords: | mathematical economics; |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2009020&r=com |
| By: | Hiroshi Kitamura (Graduate School of Economics, Osaka University) |
| Abstract: | This paper analyzes the market diffusion of a new product whose quality is uncertain. Consumers learn the product quality by observing the history of market outcomes. Firms cannot observe how consumers evaluate the product quality and learn it in response to consumerfs behavior. As a result of informational externalities, new entry occurs gradually. This dual uncertainty contributes to S-shaped diffusion of the new product with strictly declining prices. |
| Keywords: | experience goods; quality uncertainty; bilateral learning; S-shaped diffusion. |
| JEL: | D11 L11 L14 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0913&r=com |
| By: | Rupayan Pal |
| Abstract: | This paper compares equilibrium technology adoption in a differentiated duopoly under two alternative modes of product market competition, Cournot and Bertrand. It shows that the cost of technology has differential impact on technology adoption, that is, on cost-efficiency of the industry, under two alternative modes of product market competition. The possibility of ex post cost asymmetry between firms is higher under Bertrand competition than under Cournot competition. If the cost of technology is high, Bertrand competition leads to higher cost-efficiency than Cournot competition provided that the cost reducing effect of the technology is high. On the other hand, if the technology reduces the marginal cost of production by a very low amount, Cournot competition may lead to higher cost-efficiency than Bertrand competition.[IGIDR WP NO 1] |
| Keywords: | Differentiated duopoly; limit-pricing; price effect; selection effect; technology adoption; cournot; bertrand |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:1941&r=com |
| By: | Nicholas Economides (Stern School of Business, NYU) |
| Abstract: | I discuss and assess the various standards for establishing liability for loyalty discounts offered under a requirement contract. I find that the standard proposed by the Antitrust Modernization Commission is likely to result in many cases of violation that are not caught. The safe harbor defined by the AMC would permit activity that is in fact anticompetitive. I propose instead a structured rule of reason test that relies on consumers’ surplus comparisons under the loyalty /requirement practice and the but-for world. The proposed standard does not have a safe harbor based on a price/cost comparison because such comparisons do not generally correspond to consumers’ surplus comparisons. |
| Keywords: | bundling, loyalty discounts, requirement contracts, monopolization, antitrust |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0902&r=com |
| By: | Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Jürgen-Peter Kretschmer (Economic Policy Unit, Philipps-University of Marburg, Germany) |
| Abstract: | Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency ef-fect increases welfare by reducing the costs of production (synergies). How-ever, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed. |
| Keywords: | Horizontal mergers, involuntary unemployment, efficiency defense, oligopoly, competition |
| JEL: | L13 L41 J01 L16 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:sdk:wpaper:90&r=com |
| By: | HOSONO Kaoru; TAKIZAWA Miho; TSURU Kotaro |
| Abstract: | We investigate the impact of merger on innovation and efficiency using a micro dataset of Japanese manufacturing firms including unlisted firms during the period of 1995-1999. We find that the acquirer's total factor productivity (TFP) decreases immediately after mergers and does not significantly recover to the pre-merger level within three years after mergers. We also find that the R&D intensity does not significantly change after mergers in spite of a significant increase in the debt-to-asset ratio. Our results suggest that the costs of business integration are large and persistent. To take into considering large integration costs, we also analyze the post-merger performance from one year after mergers, finding no significant increase in TFP or R&D intensity up to three years after mergers. Given the heterogeneity of mergers, we analyze the post-merger performance by classifying merger types. We find that the recovery of TFP after mergers is significant for mergers across industries or within the same business group, suggesting that a synergy effect works well and integration costs are small for those types of mergers. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:09017&r=com |
| By: | Bhattacharyya, Surajit; Saxena, Arunima |
| Abstract: | The Law of Proportionate Effect depicts that firm’s growth rate is independent of its size; Gibrat (1931). Some of the existing studies support the Gibrat’s Law: Hymer and Pashigian (1962), Mansfield (1962), among others. However, Gale (1972), Shepherd (1972) and recently Punnose (2008) report a positive relationship, while Haines (1970) and Evans (1987) observe an inverse relationship between firm size and profitability. Baumol (1959) opined that rate of return increases with firm size. Therefore, the extant empirical research on the firm size – performance relationship provides inconclusive results. Manufacturing firms’ data from the Steel and Electrical & Electronics (EE) industries are taken from CMIE Prowess database for the period 2004-05 to 2006-07. Results show that firm size affects current profitability: positively in the Steel and negatively in the other. Some more determinants of firm performance are explored. Retained earnings have negative impact on profitability in Steel but, positive in EE. Bank credit is found negatively significant in both the industries. Market share of firms and industry concentration ratio (CR4) although inconsistently are the other significant determinants of firms’ performance. Firms’ market value (Q) is found positively significant for both the industries. This signifies that high market value of firms reflects their goodwill, knowledge stock and prospective investment opportunities which positively influence the firms’ performance. The significance of having high brand equity which the corporate firms thrive for becomes apparent. Interestingly, the impact of size is affected by firms’ market value: firm size positively affects profitability both in Steel and EE. Furthermore, ineffectiveness of Law of Proportionate Effect is strengthened when tested over the combined data of Steel and EE firms. The short-run dynamism in firm performance is also impacted by presence of Tobin’s Q. |
| Keywords: | Gibrat’s law, firm size, profitability, Tobin’s Q, manufacturing firms. |
| JEL: | L6 M21 |
| Date: | 2009–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13029&r=com |
| By: | Fernandez de Guevara, Juan; Maudos, Joaquin |
| Abstract: | This paper analyzes the effect of regional financial development and bank competition on firms’ growth using the Spanish provinces as a testing ground. Our results show that firms in industries with a greater dependence on external finance grow faster in more financially developed provinces. The results also show that bank monopoly power has an inverted-U effect on firms’ growth, suggesting that market power has its highest effect at intermediate values. The effect is heterogeneous among firms according to the financial dependence of the industry they belong to. This result is consistent with the literature on relationship banking which argues that bank competition can have a negative effect on the availability of finance for more informationally opaque firms. |
| Keywords: | economic growth; regional financial development; bank competition |
| JEL: | L11 D40 G21 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15256&r=com |
| By: | Farasat A.S. Bokhari (Department of Economics, Florida State University); Gary M. Fournier (Department of Economics, Florida State University) |
| Abstract: | In this paper, we exploit a novel approach for instrumenting a differentiated products demand system for therapeutically equivalent drugs. Using unusually detailed sales data on psychostimulant drugs, used to treat Attention Deficit Hyperactivity Disorder (ADHD), we are able to identify and measure substitution patterns across a range of drugs. We find that the demand for ADHD drugs is quite elastic and there are significant substitution possibilities among these drugs, both within the molecule and form, as well as across the segments. In addition, the first-time introduction of a generic drug shows large welfare gains due to expansion of the market to price sensitive consumers. Further, the welfare gains due to the introduction of me-too drugs vary by the novelty of the drug, and for significantly new varieties can be as large as those of the introduction of a generic. Our results bear policy implications for both, the speed with which new drugs are approved for marketing, as well as for actions among pharmaceutical firms that may delay the entry of a generic drug. |
| Keywords: | Differentiated products demand, multistage budgeting, AIDS model, psychostimulant drugs, new introductions, welfare analysis |
| JEL: | I10 I18 L65 L40 L50 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2009_05_01&r=com |
| By: | Georg Götz (Justus-Liebig-University Gießen, Department of Economics) |
| Abstract: | This paper reexamines the effect of the regulatory regime on both penetration and coverage of broadband access to the internet. The framework also allows for an evaluation of different public policy measures such as subsidization of broadband demand and supply. A welfare analysis asks what the optimal regulatory regime is and whether and how high-speed access to the internet should be subsidized. Using an approach similar to Valletti et al. (2002), the paper highlights the importance of population density for whether firms invest to provide internet access. The analysis reveals a trade-off between coverage and penetration. |
| Keywords: | Broadband, coverage, penetration, investment, population density |
| JEL: | L51 L96 L12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:200924&r=com |
| By: | Böhme, Enrico; Müller, Christopher |
| Abstract: | This paper investigates whether a price-concentration relationship can be found on local cinema markets in Germany. First, we test a model of monopolistic pricing using a new set of German micro data and find no significant difference in admission prices on monopoly and oligopoly markets. In a next step, we test whether this can be explained by the existence of local monopolies, but find no hint of that. Implicit or explicit collusion among cinema operators might explain our observations. |
| Keywords: | price-concentration study; cinema pricing |
| JEL: | L82 L11 R32 |
| Date: | 2009–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15315&r=com |
| By: | Matteo M. Galizzi |
| Abstract: | In the context of international gas markets, we investigate the interaction between price formation and communication networks in a bilateral duopoly with heterogeneous buyers. Given a particular buyers-sellers network graph, prices are formed as the outcome of dynamic decentralized negotiations among traders. We characterize, for any network structure, the full set of sub-game perfect Nash equilibria in pure and stationary strategies (PSSPNE) of the non-cooperative bargaining game with random order of proposals and simultaneous responses. Depending on the inter-temporal discount factor and the dispersion of reservation values across buyers, negotiations may lead, even in a completely connected buyers-sellers network, to multiple equilibria, co-existence of different prices, delays in trade and inefficient allocations. The endogenous bargaining power of each trader as a function of her position in the communication network is derived by comparing traders' payoffs across networks. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ubs:wpaper:0906&r=com |
| By: | Federico Boffa (Department of Legal and Economic Studies, University of Macerata); Viswanath Pingali (Senior Manager, Dr. Reddy’s Laboratories, Hyderabad, India); Davide Vannoni (Department of Economics and Public Finance "G. Prato", University of Torino) |
| Abstract: | In this paper we estimate the benefits resulting from interconnecting the Italian electricity spot market. The market is currently divided into two geographic zones – North and South – with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market, we predict that the total spot market expenditure would reduce substantially. Moreover, since savings do not increase linearly with the size of new transmission capacity, even a slight increment to transmission capacity is found to bring substantial benefits to end users. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits. |
| Keywords: | Transmission constraints, zonal pricing, congestion, electricity industry |
| JEL: | H44 L21 L22 L50 L94 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpaper:4&r=com |