nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒10‒17
ten papers chosen by
Russell Pittman
US Department of Justice

  1. Free Entry Bertrand Competition By Roy Chowdhury, Prabal
  2. Preemption, Predation, and Minimum Quality Standards By Mina Baliamoune; Stefan Lutz
  3. Why Do Firms Own Production Chains? By Ali Hortacsu; Chad Syverson
  4. Bundling and Competition for Slots: On the Portfolio Effects of Bundling By JEON, Doh-Shin; MENICUCCI, Dominico
  5. Bundling and Competition for Slots: Sequential Pricing By JEON, Doh-Shin; MENICUCCI, Dominico
  6. Mom-and-Pop Meet Big-Box: Complements or Substitutes? By John Haltiwanger; Ron Jarmin; C.J. Krizan
  7. Waiting for the Invisible Hand: Market Power and Endogenous Information in the Modern Market for Food By Trenton Smith; Hayley Chouinard; Philip Wandschneider
  8. Competition and Cooperation between Professional Sports Franchises: The Impact on Ticket Prices By Pelnar, Gregory
  9. "Service Quality and Competition in the U.S. Down-hill Ski Industry" By James G. Mulligan
  10. Mobile Termination and Mobile Penetration By HURKENS, Sjaak; JEON, Doh-Shin

  1. By: Roy Chowdhury, Prabal
    Abstract: This paper examines Bertrand competition under free entry, when firm size vis-a-vis market size is exogenously given. A free entry Bertrand Nash equilibrium (FEBE) exists if and only if relative market size is sufficiently large. Further, there is a unique coalition-proof Nash equilibrium price that corresponds to the minimum FEBE price, leads to average cost pricing for all active firms and is decreasing in market size.
    Keywords: Bertrand competition; free entry; coalition-proof; contestability.
    JEL: D5 L3
    Date: 2009–10
  2. By: Mina Baliamoune; Stefan Lutz
    Abstract: We present a model of vertical product differentiation and exit where a domestic and a foreign firm face fixed setup costs and quality-dependent costs of production and compete in quality and price in the domestic market. Quality-dependent costs are quadratic in qualities, but independent of the quantities produced. The domestic government may impose a minimum quality standard binding for both foreign and domestic firms. In the presence of an initial cost advantage of the domestic firm, a sufficiently high minimum quality standard set by the domestic government will enable the domestic firm to induce exit of the foreign firm, i.e. to engage in predation. However, the same standard would lead to predation by the foreign firm, if the foreign firm had the initial cost advantage!
    Keywords: vertical product differentiation, oligopoly, trade, quality, country asymmetries
    JEL: F12 F13 L13
    Date: 2009–07
  3. By: Ali Hortacsu; Chad Syverson
    Abstract: Many firms own links of production chains--i.e., they own both upstream and downstream plants in vertically linked industries. We use broad-based yet detailed data from the economy’s goods-producing sectors to investigate the reasons for such vertical ownership. It does not appear that vertical ownership is usually used to facilitate transfers of goods along the production chain, as is often presumed. Shipments from firms’ upstream units to their downstream units are surprisingly low, relative to both the firms’ total upstream production and their downstream needs. Roughly one-third of upstream plants report no shipments to their firms’ downstream units. Half ship less than three percent of their output internally. We do find that manufacturing plants in vertical ownership structures have high measures of “type” (productivity, size, and capital intensity). These patterns primarily reflect selective sorting of high plant types into large firms; once we account for firm size, vertical structure per se matters much less. We propose an alternative explanation for vertical ownership that is consistent with these results. Namely, that rather than moderating goods transfers down production chains, it instead allows more efficient transfers of intangible inputs (e.g., managerial oversight) within the firm. We document some suggestive evidence of this mechanism.
    Date: 2009–09
  4. By: JEON, Doh-Shin; MENICUCCI, Dominico
    Date: 2009–07–27
  5. By: JEON, Doh-Shin; MENICUCCI, Dominico
    Abstract: In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (Jeon- Menicucci, 2009) that considers simultaneous pricing. First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots. Second, Jeon Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.
    JEL: D4 K21 L13 L41 L82
    Date: 2009–08
  6. By: John Haltiwanger; Ron Jarmin; C.J. Krizan
    Abstract: In part due to the popular perception that Big-Boxes displace smaller, often family owned (a.k.a. Mom-and-Pop) retail establishments, several empirical studies have examined the evidence on how Big-Boxes’ impact local retail employment but no clear consensus has emerged. To help shed light on this debate, we exploit establishment-level data with detailed location information from a single metropolitan area to quantify the impact of Big-Box store entry and growth on nearby single unit and local chain stores. We incorporate a rich set of controls for local retail market conditions as well as whether or not the Big-Boxes are in the same sector as the smaller stores. We find a substantial negative impact of Big-Box entry and growth on the employment growth at both single unit and especially smaller chain stores – but only when the Big-Box activity is both in the immediate area and in the same detailed industry.
    Keywords: Big-Boxes, Small Business, Retail Trade, Firm Location, Structural Change
    JEL: R30 L16
    Date: 2009–09
  7. By: Trenton Smith; Hayley Chouinard; Philip Wandschneider (School of Economic Sciences, Washington State University)
    Abstract: In many ways, the modern market for food exemplifies the economist’s conception of perfect competition, with many buyers, many sellers, and a robust and dynamic marketplace. But over the course of the last century, the U.S. has witnessed a dramatic shift away from traditional diets and toward a diet comprised primarily of processed brand-name foods with deleterious long-term health effects. This, in turn, has generated increasingly urgent calls for policy interventions aimed at improving the quality of the American diet. In this paper, we ask whether the current state of affairs represents a market failure, and—if so—what might be done about it. We review evidence that most of the nutritional deficiencies associated with today’s processed foods were unknown to nutrition science at the time these products were introduced, promoted, and adopted by American consumers. Today more is known about the nutritional implications of various processing technologies, but a number of forces—including consumer habits, costly information, and the market power associated with both existing brands and scale economies—are working in concert to maintain the status quo. We argue that while the current brand-based industrial food system (adopted and maintained historically as a means of preventing competition from small producers) has its advantages, the time may have come to consider expanding the system of quality grading employed in commodity markets into the retail market for food.
    Keywords: credence goods, history, food policy, certification
    JEL: D23 D83 I18 Q18
    Date: 2009–02
  8. By: Pelnar, Gregory
    Abstract: An important issue in many antitrust lawsuits involving professional sports leagues and their member teams is the extent to which franchises within the same, and across different, professional sports leagues compete with one another for fans and advertisers. Complicating the issue is the fact that some sports franchises also cooperate with other franchises in the same or different leagues by, for example, participating in a joint venture to build and operate the stadium in which they will play their games or a regional sports network joint venture to televise their games. An extreme form of cooperation is common ownership: some franchises in different sports leagues have common ownership. This study investigates the impact of competition and cooperation among the franchises of the four major professional sports leagues (i.e., the National Football League, National Basketball Association, National Hockey League, and Major League Baseball) on ticket prices for the 2008 season. The regression results suggest that the existence of one or more rival sports franchises in the same metropolitan area does not have a statistically significant impact on ticket prices. On the other hand, there is at best weak evidence that cooperation between sports franchises impacts ticket prices. These findings are consistent with a number of alternative hypotheses.
    Keywords: sports leagues; antitrust; National Football League; National Basketball Association; National Hockey League; Major League Baseball
    JEL: L11 L83 L40
    Date: 2009–10–03
  9. By: James G. Mulligan (Department of Economics,University of Delaware)
    Abstract: This paper illustrates the importance of the role of land constraints in a model explaining the effect of real income and transportation cost on long-run lift-ticket prices and lift capacity in a competitive two-sector ski industry. The model also explains large endogenous increases in lift capacity and real prices over time in response to an increase in real skier income despite a static number of skier-days per year. This approach, thus, has points in common with work by Shaked and Sutton (1986 and 1987), Sutton (1991 and 1998) on endogenous vertical differentiation and persistent market concentration.
    Keywords: skiing, service quality, capacity, pricing
    JEL: L11 L83
    Date: 2009
  10. By: HURKENS, Sjaak; JEON, Doh-Shin
    Date: 2009–07–28

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