nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒07‒17
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Downstream merger and welfare in a bilateral oligopoly By George Symeonidis
  2. On cost restrictions in spatial competition models with heterogeneous firms By Marco Alderighi; Claudio A. Piga
  3. On Reputational Rents as an Incentive Mechanism in Competitive Markets By Bernardita Vial;; Felipe Zurita.
  4. Input specificity and product differentiation By Noriaki Matsushima; Tomomichi Mizuno
  5. A Simple Model of Foreign Brand Penetration under Monopolistic Competition By Toru Kikuchi
  6. Do Inter-Firm Networks Make Access to Finance Easier? Issues and Empirical Evidence By Domenico Scalera; Alberto Zazzaro
  8. Deposit market competition, costs of funding and bank risk By Ben R Craig; Valeriya Dinger
  10. Hospital Markets and the Effect of Competition on Quality By Alfons Palangkaraya; Jongsay Yong
  11. Strategic Coopetition of Global Brands: A Game Theory Approach to ‘Nike + iPod Sport Kit’ Co-branding By Rodrigues, Flávio; Souza, Victória; Leitão, João
  12. Uniqueness seeking and demand estimation in the German automobile industry By Marco Guerzoni; Rene Soellner
  13. DYNAMICS OF MARKET SHARE IN THE MICROFINANCE INDUSTRY IN BANGLADESH By Mahmoud, Chowdhury Shameem; Khalily, M. A. Baqui; Wadood, Syed Naimul
  14. Market Power in Pollution Permit Markets By Juan Pablo Montero

  1. By: George Symeonidis
    Abstract: I analyse the effects of a downstream merger in a differentiated oligopoly when there is bargaining between downstream firms and upstream agents (firms or unions). Bargaining outcomes can be observable or unobservable by rivals. When competition is in quantities, upstream agents are independent and bargaining is over a uniform input price, a merger between downstream firms may raise consumer surplus and overall welfare. However, when competition is in prices or the upstream agents are not independent or bargaining is over a two-part tariff or bargaining covers both the input price and the level of output, the standard welfare results are restored: a downstream merger always reduces consumer surplus and overall welfare.
    Date: 2009–07–13
  2. By: Marco Alderighi (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: This paper investigates the properties of two types of cost restrictions that guarantee the existence of an equilibrium in pure strategies in Bayesian spatial competition models with heterogenous firms.
    Keywords: Localized competition; market effciency, cost heterogeneity.
    JEL: L11 D61
    Date: 2009–07
  3. By: Bernardita Vial; (Instituto de Economía. Pontificia Universidad Católica de Chile.); Felipe Zurita.
    Abstract: This paper shows that more intense competition may improve, rather than hamper, the chances that a market for an experience good or service overcomes the problems caused by informational asymmetries. This, in spite of the fact that intensified competition diminishes the reputational rents that -allegedly- provide the incentives for the production of high quality. Our results show that instead, these incentives are created by price differentials not levels.
    Keywords: Reputation, rents, competition, adverse selection, experience good, public monitoring.
    JEL: L15 D82 D41
    Date: 2009
  4. By: Noriaki Matsushima; Tomomichi Mizuno
    Abstract: Using a simple product differentiation model with elastic demands, we investigate the relationship between differentiation strategies and vertical relations. Depending on the competitive structure in the upstream market, three differentiation patterns (maximum, minimum and partial differentiation) can appear in equilibrium even though each downstream firm freely determines the degree of product differentiation. When downstream firms must incur positive investment costs to differentiate their products, they tend to do so if the upstream market is competitive.
    Date: 2009–06
  5. By: Toru Kikuchi (Graduate School of Economics, Kobe University)
    Abstract: The main purpose of this study is to illustrate, with a simple monopolistic competition trade model, how trade liberalization (i.e., a decline in trade costs) can affect domestic entrepreneurs' decisions between domestic brands and foreign brands, and thus the degree of foreign brand penetration. It is shown that, as trade costs decrease, more entrepreneurs choose to provide foreign brands. However, the impact of trade liberalization (in terms of changes in profitt levels) becomes smaller as more entrepreneurs switch to foreign brands.
    Keywords: Foreign brand penetration, trade liberalization, monopolistic competition
    JEL: F12
    Date: 2009–07
  6. By: Domenico Scalera (Universit… del Sannio); Alberto Zazzaro (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Abstract: Does participation in inter-firm networks make access to credit easier for firms? Is finance a motivation driving the formation of inter-firm networks? During the last twenty years these two questions have been hotly debated by economists both theoretically and empirically. In this paper, we selectively review the literature on inter-firm networking, internal capital markets and access to external credit.
    Date: 2009–07
  7. By: Chongwoo Choe; Chander Shekhar
    Abstract: We study a voluntary pre-merger notification game under asymmetric information and characterize perfect Bayesian equilibria. It is shown that the equilibrium outcomes are similar to those when notification is compulsory. However, thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia where pre-merger notification is voluntary. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the parties as well as to the regulator.
    Keywords: Merger regulation, pre-merger notification, abnormal returns.
    JEL: D21 G34 K21 L40
    Date: 2009–06
  8. By: Ben R Craig; Valeriya Dinger
    Abstract: This paper presents an empirical examination of the effects of both deposit market competition and of wholesale funding on bank risk simultaneously. The traditional view of the relation between competition and risk has focused on the disciplining role of the charter value. In this project we argue that if the structure of bank liabilities and the costs of retail and wholesale funding are jointly determined with bank risk, the omission of wholesale funding in the empirical analysis of the relation between deposit market competition and risk may give rise to a substantial bias in the estimated results. This will be especially the case where wholesale lenders “screen” their borrowers’ risk as argued by the market discipline literature. We propose a new approach to the estimation of the relation between deposit market competition and bank risk which accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 US banks. Our results support the notion of a risk-enhancing effect of deposit market competition.
    Keywords: Bank competition ; Bank deposits
    Date: 2009
  9. By: Yan Liu; Guangâ€Zhen Sun
    Abstract: We develop a framework, extending the conventional duopoly model by replacing the Hotelling line with a simplex in highâ€dimension spaces, to study the competition and access regulation of multiple networks. We first characterize the competitive equilibrium when the substitutabilities of the networks are not too high, or the access charges are nearly costâ€based. We then analyse how the equilibrium market shares respond to marginal variations in the access charges under various regimes of access regulation, and thereby examine the efficiency implications of such regulation regimes. In particular, we analyze the asymmetric scenario in which some networks are incumbent and some are entrants. It is shown that some existing results of the duopoly do not extend to a multiâ€firm setting, largely because regulation of multiple networks is structurally far richer.
    Keywords: Telecommunications, oligopoly, network competition, access regulation.
    JEL: L96 L51 D43
    Date: 2009–06
  10. By: Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Jongsay Yong (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper investigates the effects of competition on hospital quality. It proposes to extend the Elzinga-Hogarty quantity flow approach of defining markets by first determining the trading cluster to which each hospital belongs and then delineating markets using patient flow information. After defining hospital markets and computing measures of competition, this paper examines the effect of competition on hospital quality using hospital administration data from the state of Victoria, Australia. We approximate quality using two indicators, namely mortality within 30 days of discharge and unplanned readmission within 28 days of discharge. For each quality indicator, a random intercept logit model is estimated. Two main findings are reported. First, the boundaries of markets and hence the degree of competition depend on the nature of the medical services provided. Second, competition is found to have a mixed effect on quality of hospital care–increasing the number of private hospitals appears to lower quality, while increasing the number of public hospitals has the opposite effect. The intensity of competition, on the other hand, does not appear to have a statistically significant effect on quality.
    Keywords: Hospital markets; Elzinga-Hogarty; Hospital competition; Hospital Quality.
    JEL: I11 D24
    Date: 2009–06
  11. By: Rodrigues, Flávio; Souza, Victória; Leitão, João
    Abstract: Co-branding can be implemented by establishing an agreement of strategic coopetition that allows companies to compete and cooperate simultaneously in order to obtain competitive advantages through operational synergy. With this type of agreement, brands enter markets sharing loyal customers they would be unlikely to reach individually. The main advantages associated with implementation of this form of strategic coopetition are the possibility of jointly communicating brand image, reputation and credibility in a global market where consumers tend to have homogeneous preferences and convergent lifestyles. The strategic coopetition between two global brands, Apple and Nike, through development of the ‘Nike+iPod Sport Kit’ product, serves as a benchmark to illustrate the benefits associated with implementation of coopetitive cooperation agreements. From application of the game theory, simulation of a game of strategic coopetition provided results that confirm global brands obtain benefits, albeit not in equal measure, in terms of adding value to the brand image at a world level.
    Keywords: Co-branding; Coopetition; Global brands; Growth of brand value.
    JEL: M31 O32 M13
    Date: 2009–07–07
  12. By: Marco Guerzoni (Friedrich-Schiller University Jena, Faculty of Economics and Business Administration); Rene Soellner (Graduate School "The Economics of Innovative Change", Jena)
    Abstract: This paper empirically analyzes the determinants of demand in the German automobile industry. Our primary goal is to refine the existing literature on that topic by exploring the impact of uniqueness seeking behaviour of individuals on the demand schedule. Using a dataset on the segment of compact cars in the German market, we show that consumers have an intrinsic need for uniqueness seeking, and the degree a product satisfies this need is to be considered as an additional product characteristic.
    Keywords: Demand Estimation, Discrete Choice, Differentiated Products
    JEL: D12 L11 L15 L62
    Date: 2009–07–08
  13. By: Mahmoud, Chowdhury Shameem; Khalily, M. A. Baqui; Wadood, Syed Naimul
    Abstract: We discuss evidence that the microcredit industry in Bangladesh has seen emergence of large variations in the size of the microfinance institutions operating in the market-- on the one hand, there are large national-level MFIs, while on the other hand, small localized MFIs operating only within the confines of a small area. Data from a recent survey of Pathrail union in Tangail district, a seasoned place for microcredit, reveals that within the local market competition is becoming more and more intense over time between established national-level MFIs and newly emerging local-level MFIs for market shares in terms of loan amount as well as borrowed members. Data reveals that there is market segmentation where some borrowers and MFIs opt for a package of low interest rates tied with low amount of loan disbursed and some other borrowers and MFIs settle for a package of high interest rates tied with high amount of loan disbursed. A Tobit regression estimation of member market shares in village micro credit market shows that size of the MFI, years of operation in the village, average loan size, deposit interest rates, loan amount disbursed for unique loan purposes (i.e., housing loan) are key determinants in determining MFI shares of a village microcredit market.
    Keywords: Microcredit; Market Share; Product and Provider Characteristics of Microcredit
    JEL: L11 C34 D02 D4 L1 G21
    Date: 2009–07–10
  14. By: Juan Pablo Montero (Instituto de Economía. Pontificia Universidad Católica de Chile.)
    Abstract: As with other commodity markets, markets for trading pollution permits have not been immune to market power concerns. In this paper, I survey the existing literature on market power in permit trading but also contribute with some new results and ideas. <br><br>I start the survey with Hahn’s (1984) dominant-firm (static) model that I then extend to the case in which there are two or more strategic firms that may also strategically interact in the output market, to the case in which current permits can be stored for future use (as in most existing and proposed market designs), to the possibility of collusive behavior, and to the case in which permits are auctioned off instead of allocated for free to firms. <br><br>I finish the paper with a review of empirical evidence on market power, if any, with particular attention to the U.S. sulfur market and the Southern California NOx market.
    Keywords: Market power, emissions trading, pollution permits, storable permits.
    JEL: D40 L13 Q58
    Date: 2009

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