nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒08‒22
six papers chosen by
Russell Pittman
US Department of Justice

  1. Empirical analysis of buyer power By Walter Beckert
  2. Reputation and Credit Market Formation: How Relational Incentives and Legal Contract Enforcement Interact By Fehr, Ernst; Zehnder, Christian
  3. Airline Market Power and Intertemporal Price Dispersion By Alberto A. Gaggero; Claudio A. Piga
  4. Price and welfare effects of a pharmaceutical substitution reform By Granlund, David
  5. Measuring the price responsiveness of gasoline demand By Richard Blundell; Joel Horowitz; Matthias Parey
  6. The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments By Paula Neto; António Brandão; António Cerqueira

  1. By: Walter Beckert (Institute for Fiscal Studies and Birkbeck College London)
    Abstract: <p><p>This paper provides a comprehensive econometric framework for the empirical analysis of buyer power. It encompasses the two main features of pricing schemes in business-to-business relationships: nonlinear price schedules and bargaining over rents. Disentangling them is critical to the empirical identification of buyer power. Testable predictions from the theoretical analysis are delineated, and a pragmatic empirical methodology is presented. It is readily implementable on the basis of transaction data, routinely collected by antitrust authorities. The empirical framework is illustrated using data from the UK brick industry. The paper emphasizes the importance of controlling for endogeneity of volumes and for heterogeneity across buyers and sellers.</p></p>
    Date: 2009–07
  2. By: Fehr, Ernst (University of Zurich); Zehnder, Christian (University of Lausanne)
    Abstract: The evidence suggests that relational contracting and legal rules play an important role in credit markets but on the basis of the prevailing field data it is difficult to pin down their causal impact. Here we show experimentally that relational incentives are a powerful causal determinant for the existence and performance of credit markets. In fact, in the absence of legal enforcement and reputation formation opportunities the credit market breaks down almost completely while if reputation formation is possible a stable credit market emerges even in the absence of legal enforcement of debt repayment. Introducing legal enforcement of repayments causes a further significant increase in credit market trading but has only a surprisingly small impact on overall efficiency. The reason is that legal enforcement of debt repayments weakens relational incentives and exacerbates another moral hazard problem in credit markets – the choice of inefficient high-risk projects.
    Keywords: credit markets, relationship lending, reputation formation, legal enforcement
    JEL: C91 G21 G28 L14
    Date: 2009–08
  3. By: Alberto A. Gaggero (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the UK and the Republic of Ireland. Price dispersion is measured by a number of inequality indexes, calculated using fares posted on the Internet at specific days before takeoff. We find a negative correlation between market dominance and price dispersion; thus competition appears to hinder the airlines' ability to price discriminate to exploit consumers' heterogeneity in booking time preferences. Moreover, in the Christmas and Easter periods of high demand, fares are less dispersed, possibly because airlines target a less heterogenous set of consumers.
    Keywords: Intertemporal pricing, competition, price dispersion.
    JEL: D43 L10 L93
    Date: 2009–07
  4. By: Granlund, David (Department of Economics, Umeå University)
    Abstract: The price effects of the Swedish pharmaceutical substitution reform are analyzed using data for a panel of all pharmaceutical product sold in Sweden in 1997—2007. The price reduction due to the reform was estimated to average 10% and was found to be significantly larger for brand name pharmaceuticals than for generics. The results also imply that the reform amplified the effect of generic entry has on brand-name prices by a factor of ten. Results of a demand-estimation imply that the price reductions increased total pharmaceutical consumption by 8% and consumer welfare by SEK 2.7 billion annually.
    Keywords: drugs; generic competition; equivalent variation; demand estimation
    JEL: D40 I11 L65
    Date: 2009–08–13
  5. By: Richard Blundell (Institute for Fiscal Studies and University College London); Joel Horowitz (Institute for Fiscal Studies and Northwestern University); Matthias Parey (Institute for Fiscal Studies)
    Abstract: <p>This paper develops a new method for estimating the demand function for gasoline and the deadweight loss due to an increase in the gasoline tax. The method is also applicable to other goods. The method uses shape restrictions derived from economic theory to improve the precision of a nonparametric estimate of the demand function. Using data from the U.S. National Household Travel Survey, we show that the restrictions are consistent with the data on gasoline demand and remove the anomalous behavior of a standard nonparametric estimator. Our approach provides new insights about the price responsiveness of gasoline demand and the way responses vary across the income distribution. We reject constant elasticity models and find that price responses vary non-monotonically with income. In particular, we find that low- and high-income consumers are less responsive to changes in gasoline prices than are middle-income consumers.</p>
    Date: 2009–05
  6. By: Paula Neto (ISCA, University of Aveiro); António Brandão (FEP, University of Porto); António Cerqueira (FEP, University of Porto)
    Abstract: When a company decides to invest abroad, it can do it through the establishment of a new firm (greenfield investment) or by the purchase of an already existing firm. Although there is a vast empirical literature on the macroeconomic determinants of aggregate FDI, there are just a few studies examining the location-specific determinants of each entry mode. The aim of this study is to extend the previous work by Globerman and Shapiro (2005) through the analysis of panel data of 53 countries over the period 1996-2006, in order to identify the potential location-specific determinants of both M&A and greenfields. We have found evidence that there is a group of mode-encompassing variables which are common to all entry modes (such as economy’s size, openness, governance and human development index) and mode-specific variables. Investor’s protection and cultural variables seem to play an important role in the explanation of M&A and greenfields, respectively.
    Keywords: Foreign Direct Investment, Cross Border Mergers and Acquisitions, Greenfield Investments.
    JEL: F23 F40 G34
    Date: 2009–08

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