nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒06‒10
ten papers chosen by
Russell Pittman
US Department of Justice

  1. Bertrand's price competition in markets with fixed costs By Alejandro Saporiti; German Coloma
  2. Non-Exclusive Competition in the Market for Lemons By Andrea Attar; Thomas Mariotti; Francois Salanie
  3. Environmental Regulation and Industry Dynamics By Aditi Sengupta
  4. The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists By Norbäck, Pehr-Johan; Persson, Lars
  5. Integration and Competition between Transport and Logistics Businesses By OECD
  6. Competitive Interaction between Airports, Airlines and High-Speed Rail By OECD
  7. Contestability, Technology and Banking By Corvoisier, Sandrine; Gropp, Reint Eberhard
  8. Patent Disclosure and R&D Competition in Pharmaceuticals. By Laura Magazzini; Fabio Pammolli; Massimo Riccaboni; Maria Alessandra Rossi
  9. Competition and cooperation in a metal engineering production system By Margherita Russo; Elena Pirani
  10. An Examination of the Market Structure of the U.S. Produce Industry By Epperson, J.E.

  1. By: Alejandro Saporiti (University of Manchester); German Coloma (Universidad del CEMA)
    Abstract: This paper provides necessary and sufficient conditions for the existence of a pure strategy Bertrand equilibrium in a model of price competition with fixed costs. It unveils an interesting and unexplored relationship between Bertrand competition and natural monopoly. That relationship points out that the non-subadditivity of the cost function at the output level corresponding to the oligopoly break-even price, denoted by D(pL (n)), is sufficient to guarantee that the market supports a (not necessarily symmetric) Bertrand equilibrium in pure strategies with two or more firms supplying at least D(pL (n)). Conversely, the existence of a pure strategy equilibrium ensures that the cost function is not subadditive at every output greater than or equal to D(p(n)).
    Keywords: Bertrand competition, cost subadditivity, fixed costs, natural monopoly.
    JEL: D43 L13
    Date: 2009–05
  2. By: Andrea Attar; Thomas Mariotti; Francois Salanie
    Date: 2009–05
  3. By: Aditi Sengupta (SMU)
    Abstract: We examine the effect of more stringent environmental regulation on the dynamic structure of a deterministic competitive industry with endogenous entry and exit where firms invest in reduction of their future compliance cost. The level of regulation is exogenously fixed and constant over time. The compliance cost of a firm at each point of time depends on its current output, its accumulated past investment and the level of regulation. We outline sufficient conditions under which industries with more stringent regulation are associated with higher investment in compliance cost reduction and higher shake-out of firms over time; the opposite may be true under certain circumstances. Our analysis indicates that the effect of a change in regulation on market structure may be lagged over time.
    Keywords: Environmental regulation; Industry dynamics; Investment; Shake-out.
    JEL: L51 L52 O33 Q52
    Date: 2009–06
  4. By: Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems.
    Keywords: Acquisitions; Entrepreneurship; Innovation; Venture Capital
    JEL: G24 L10 L20 M13 O30
    Date: 2009–01–02
  5. By: OECD
    Abstract: The Round Table, chaired by Russell Pittman of the US Department of Justice, reviewed trends in horizontal and vertical integration in logistics businesses, maritime shipping, ports and rail freight transport and examined the circumstances in which integration might reduce the efficiency of the transport system. There are likely to be net benefits to society from such integration in competitive markets but if integration eliminates competition, market power might result in excessive prices, suboptimal investment and lower than optimal levels of service for the users of transport services. Options for sector specific regulators and competition authorities to manage the risks of market abuse were discussed and the adequacy of antitrust law and competition authorities to take remedial action should businesses exploit market power were assessed.
    Date: 2009–06
  6. By: OECD
    Abstract: This paper summarizes, structures, and provides some context for discussions of the round table mentioned in the title. The first part of the paper focuses on sources of market power for airports and on policy responses. When an airport is congested and competition with other airports is limited, regulation may be justified, and the dual till approach likely works best. In other cases, however, policy should establish conditions for competition to emerge as much as possible, instead of attempting to design a general regulatory framework. The second part of the paper discusses elements of climate change policy in aviation. Including aviation in emission trading schemes is a sensible idea, but should not be expected to produce major cuts in CO2-emissions from aviation; containing its growth possibly is a more realistic, yet ambitious, objective. High-speed rail is justified in a number of situations, but is not a general alternative for air travel and certainly not a second-best way to reduce greenhouse gas emissions from aviation.
    Date: 2009–06
  7. By: Corvoisier, Sandrine; Gropp, Reint Eberhard
    Abstract: We estimate the effect of internet penetration on retail bank margins in the euro area. Based on an adapted Baumol [1982] type contestability model, we argue that the internet has reduced sunk costs and therefore increased contestability in retail banking. We test this conjecture by estimating the model using semi-aggregated data for a panel of euro area countries. We utilise time series and cross-sectional variation in internet penetration. We find support for an increase in contestability in deposit markets, and no effect for loan markets. The paper suggests that for time and savings deposits, the presence of brick and mortar bank branches may no longer be of first order importance for the assessment of the competitive structure of the market.
    Keywords: Banking structure, Contestability, Internet
    JEL: D43 E43 G21
    Date: 2009
  8. By: Laura Magazzini; Fabio Pammolli; Massimo Riccaboni; Maria Alessandra Rossi
    Abstract: The prominent role played by patents within the pharmaceutical domain is unquestionable. In this paper we take an unusual perspective and focus on a relatively neglected implication of patents: the effect of patent-induced information disclosure (of both successes and failures) on the dynamics of R&D and market competition. The study builds upon the combination of two large datasets, linking the information about patents to firm level data on R&D projects and their outcome. Two case studies in the fields of anti-inflammatory compounds and cancer research complement our analysis. We show the important role played by patent disclosure in shaping firms technological trajectories through the possibility of reciprocal monitoring in a context of parallel research efforts, and suggest the importance of enhancing the diffusion of information concerning failures, not only to avoid wasteful duplication of innovative efforts, but also as a tool for the identification of promising research trajectories. This paper is the result of the "R&D competition" research project carried out jointly with Adrian Towse and Martina Garau of the Office of Health Economics, London, UK. A preliminary draft of the paper has been presented to the DRUID Summer Conference 2006 (Copenhagen), and to the 11th ISS Conference (Sophia-Antipolis).
    Keywords: patent disclosure; innovation; r&d competition
    JEL: D23 D83 O34
    Date: 2009–06
  9. By: Margherita Russo; Elena Pirani
    Abstract: In the discussion on the prospects for growth of the manufacturing system in Italy one still unsolved problem stands out: the small size of the firms. There is a great concern regarding not only sectors facing strong competition from countries with a low labour cost, but even sectors with a good position in the world market, as the engineering firms in the province of Modena. As a matter of fact, in the mechanical-engineering sector there is a large number of small firms and only very few firms belong to “groups” (and instances of foreign groups are rare): small size of independent companies is considered a sign of weakness that could be a mark of their inability to operate on international markets and thus to face the challenges of globalization. The paper investigates the systemic characteristic of the mechanical-engineering production system in Modena and the strength of many short chains of linkages within the network of companies operating at local level for the global markets. Our focus is the dynamics of change of the system. The literature on industrial districts has frequently emphasized how the firms that operate in the district are in competition with one another, when it is a question of firms specializing in the same stage of the production process; whereas they cooperate in the case of firms operating in different stages in the same production filière. This particular pattern of competition and cooperation among firms specializing in a stage could be one of the distinguishing marks of the system (“equilibrium” factors, as Brusco, 1989 and 1999, calls them). This explanation supposes that the firms can be either in competition or cooperating, we find forms of competition, for certain activities, among firms that cooperate for other activities. The data on the presence of competitors among the suppliers or the clients give an idea of how extensive this phenomenon is in the Modena engineering system. In this paper we show that the weak points of Modena’s mechanical-engineering industry lie not so much in the size of the firm as in the mechanisms that fuel and regenerate the competences needed to sustain the development of the network of firms. This line of research opens new question in the analysis of market systems and network of competences that are addressed in the last part of the paper.
    Keywords: local production system, mechanical-engineering firms,cooperation, competition, market system
    JEL: L16 L25 L20 L60
    Date: 2009–06
  10. By: Epperson, J.E.
    Abstract: Recent literature, largely from the U.S. Department of Agriculture, Economic Research Service, indicates that substantial changes have occurred in the produce industry in recent years. With the rise of retail mass merchandisers and increased concentration in the retail food industry, the procurement power of these large firms reportedly has also increased. With direct buying and contracting, market intermediaries such as brokers and wholesalers allegedly are being bypassed. As a result, these market intermediaries ostensibly are also consolidating becoming fewer and larger with increased emphasis on servicing the food service industry. However, the findings of this study indicate that there is no convincing evidence that the market structure of the U.S. produce industry has markedly changed since the early 1980s. While supermarket concentration has increased noticeably, the same cannot be said for produce market intermediaries such as brokers and wholesalers.
    Keywords: Agribusiness, Industrial Organization, Marketing,
    Date: 2009–05

This nep-com issue is ©2009 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.