nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒12‒05
sixteen papers chosen by
Russell Pittman
US Department of Justice

  1. Competition, Reputation and Compliance By P. Vanin
  2. Prizes and Patents: Using Market Signals to Provide Incentives for Innovations By V. V. Chari; Mikhail Golosov; Aleh Tsyvinski
  3. Endogenous Market Structure and Foreign Market Entry By Markusen, James R.; Stähler, Frank
  4. The Stock Market's Valuation of Research and Development and Market Concentration in Horizontal Mergers By Ralph M. Sonenshine
  5. Disentangling the Link Between Stock and Accounting Performance in Acquisitions By Betzer, André; Goergen, Marc; Metzger, Daniel
  6. Exporting and Product Innovation at the Firm Level By Bratti , Massimiliano; Felice, Giulia
  7. Foreign Competition and Small-Firm Entry in US Manufacturing By Robert M. Feinberg
  8. Contract Incompleteness, Globalization and Vertical Structure: an Empirical Analysis By Luigi Pascali
  10. Market Structure Conduct Performance Hypothesis Revisited Using Stochastic Frontier Efficiency Analysis By Shaik, Saleem; Allen, Albert J.; Edwards, Seanicaa; Harris, James
  11. Selective contracting and foreclosure in health care markets By Bijlsma, Michiel; Boone, Jan; Zwart, Gijsbert
  12. Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets By Maarten Janssen; Paul Pichler; Simon Weidenholzer
  13. Targeted advertising with consumer search: an economic analysis of keywords advertising By Alexandre de Cornière
  14. The Determinants of State-Level Antitrust Enforcement By Robert M. Feinberg; Kara M. Reynolds
  15. Micro and macro indicators of competition: comparison and relation with productivity change By Polder, Michael; Veldhuizen, Erik; Bergen, Dirk van den; Pijll, Eugène van der
  16. Competition Policy Trends and Economic Growth: Cross-National Empirical Evidence By Joseph A. Clougherty

  1. By: P. Vanin
    Abstract: This paper displays a linear demand oligopoly model, in which firms endogenously decide whether to enter the market and whether to specialize on high or low quality products, and then repeatedly interact to sell experience goods. It shows that the intuition that low and rising prices grant compliance with quality promises extends to this setting, provided that high quality is sufficiently important to buyers.
    JEL: L13 L14 L15
    Date: 2009–11
  2. By: V. V. Chari; Mikhail Golosov; Aleh Tsyvinski
    Date: 2009–12–01
  3. By: Markusen, James R.; Stähler, Frank
    Abstract: Models dealing with cross-border acquisitions versus greenfield investment usually assume that the entry of a foreign firm into a market has effects on the outputs of all domestic firms in that market, but exit or entry of local firms is not considered. The purpose of this paper is to re-examine the acquisition versus greenfield versus exporting question under fixed versus free entry assumptions for local firms. Our finding is that greenfield entry and exporting options are more attractive relative to acquisition when the local market structure adjusts to foreign entry through local entry or exit than when it is fixed. The entering foreign firm may do better or worse under free entry versus a fixed market structure depending on its optimal choice under the latter assumption.
    Keywords: Cross-border acquisitions; endogenous market structures; foreign direct investment; multinational firms
    JEL: F12 F23
    Date: 2009–11
  4. By: Ralph M. Sonenshine
    Abstract: It is well documented that acquirers often pay a very large premium to acquire companies in related industries. There are many explanations as to the source of this premium. This study isolates two variables, R and D-intensity and market concentration, and correlates their value individually and jointly to the value of the acquired company. The results indicate that change in market concentration and Research and Development is positively correlated to the merger deal premium in a horizontal merger. Furthermore, deal premiums tend to follow an inverted U curve pattern relative to market concentration change. The study also shows that cost synergies and macro economic growth impact deal premium values.
    Keywords: mergers, Research and Development, market concentration, deal premium
    Date: 2009–08
  5. By: Betzer, André; Goergen, Marc (Cardiff Business School); Metzger, Daniel
    Abstract: While empirical studies that use event-study methodology find on average that the gains from mergers and acquisitions are positive, those focusing on accounting figures tend to find a significant drop in performance. We argue that each of the four possible combinations between positive or negative abnormal stock returns and accounting performance is due to a distinct acquisition motive. We find strong empirical evidence in support of this claim.
    Keywords: Mergers and acquisitions; performance measurement; synergies; preemption; overvaluation; corporate governance; agency problems
    JEL: G34 G3 G14
    Date: 2009–11
  6. By: Bratti , Massimiliano; Felice, Giulia
    Abstract: Past research showed that exporters perform better than non-exporters in several domains, micro-level empirical evidence on the innovation-enhancing effect of export is, however, very scant. In this paper, we analyze the relationship between a firm's export status and its product innovation activity by using a rich firm-level survey on Italian manufacturing. First, we find that the positive effect of exporting on product innovativeness is robust to controlling for many sources of firm's observable heterogeneity and to allowing export activity to be endogenous. Second, we report evidence that the effect of exporting on product innovation is likely to be demand-driven, that is to originate from the interaction between domestic firms and foreign customers.
    Keywords: Exporting; Firms; Italy; Manufacturing; Product Innovation
    JEL: F1 O31
    Date: 2009–11–29
  7. By: Robert M. Feinberg
    Abstract: In our increasingly globalized economy, the growth and profit prospects of domestic firms, especially small firms, seem clearly impacted by competitive pressures from foreign firms. This article analyzes annual data for 1989-1998 for 140 3-digit SIC manufacturing industries and for 1998-2004 for 86 4-digit NAICS industries on establishment -- plant-level -- births by small firms in several size categories. The major finding is that international pressures, in the form of import share weighted exchange rate appreciation, seem to lead to reduced rates of smallest-firm entry in manufacturing, though the magnitudes of these effects are smaller than sometimes discussed (and there is the suggestion that dollar appreciation may actually benefit small firm entry through access to cheaper inputs where the final product import threat is weak).
    Keywords: small firms, entry, foreign competition, exchange rates
    Date: 2009–03
  8. By: Luigi Pascali (Boston College)
    Abstract: This paper studies the effects of international openness and contracting institutions on vertical integration. It first derives a number of predictions regarding the interactions between trade barriers, contracting costs, technology intensity, and the extent of vertical integration from a simple model with incomplete contracts. Then it investigates these predictions using a new dataset of over 14000 firms from 45 developing countries. Consistent with theory, the effect of technology intensity of domestic producers on their likelihood to vertically integrate is decreasing in the quality of domestic contracting institutions and in international openness. Contract enforcing costs are particularly high in developing countries and their effects on the vertical structure of technological intensive firms may have significant welfare costs. If improving domestic contracting institutions is not feasible an equivalent solution is to increase openness to international trade. This would discipline domestic suppliers reducing the need for vertical integration.
    Keywords: Vertical integration, Hold-up, Incomplete contracts, Trade openness
    JEL: D23 F15 L14
    Date: 2009–11–23
  9. By: Andrés Álvarez
    Abstract: This paper analyses how Cournot‟s views on Monopoly have influenced the marginalists authors. It is argued that there are two different points of view in the cournotian evaluation of the consequence of Monopoly. The first one is a purely theoretical construction adopted in modern economic theory. Even if it is a theoretical one it has normative consequence. From these it is derived a negative appreciation on Monopoly. The second is a more pragmatic point of view. Whereas the former is purely theoretical the latter is derived from multiple examples and it cannot be based on the same theoretical framework as the well known theory of monopoly prices. From this pragmatic point of view, Cournot constructs some “positive” appreciations on the existence of monopolies. These two different appreciations on imperfect markets have influenced in different ways the works of the authors of the Marginal Revolution. Following this distinction we study the different points of view of Walras, Edgeworth and Marshall on Monopoly. We show that even if Walras‟s theory of Monopoly does not have the same theoretical foundations of Cournot‟s, his normative point of view on monopolies is closely related with the “purely theoretical” conclusions. Walras frequently quoted Cournot on these matters. Edgeworth and Marshall have a different point of view on Monopoly, mainly pragmatic and sometimes quite positive from the normative point of view. However Walras‟s as well as Edgeworth‟s and Marshall‟s theories on monopoly are not based on their theories of perfect competition. We conclude that the marginlists views on imperfect competition are not constructed as a “perturbation” or a “friction” of a perfectly competitive market.
    Date: 2009–08–23
  10. By: Shaik, Saleem; Allen, Albert J.; Edwards, Seanicaa; Harris, James
    Abstract: Stochastic frontier analysis, which is used to estimate the technical efficiency, is extended to examine the market structure, conduct and performance hypothesis for the U.S. trucking industry. The technical efficiency measure takes into account not only the relationship between inputs used in the production of output but also simultaneously examine the importance of market structure conduct factors on the performance of the firm. An empirical application to U.S. trucking carriers over the period 1994-2003 is examined. Results reveal that the variables average haul, average load, debt-to-equity and market concentration significantly affected technical efficiency. Capital, fixed and variable input variables were significant in the production function equation.
    Keywords: Demand and Price Analysis, Marketing,
    Date: 2009–09
  11. By: Bijlsma, Michiel; Boone, Jan; Zwart, Gijsbert
    Abstract: We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.
    Keywords: anti-competitive effects; exclusion; foreclosure; health insurance; selective contracting; uninsured
    JEL: G22 I11 L42
    Date: 2009–11
  12. By: Maarten Janssen; Paul Pichler; Simon Weidenholzer
    Abstract: A large variety of markets, such as retail markets for gasoline or mortgage markets, are characterized by a small number of firms offering a fairly homogenous product at virtually the same cost, while consumers, being uninformed about this cost, sequentially search for low prices. The present paper provides a theoretical examination of this type of market, and confronts the theory with data on retail gasoline prices. We develop a sequential search model with incomplete information and characterize a perfect Bayesian equilibrium in which consumers follow simple reservation price strategies. Firms strategically exploit consumers being uninformed about their production cost, and set on average higher prices compared to the standard complete information model. Thus, consumer welfare is lower. Using data on the gasoline retail market in Vienna (Austria), we further argue that incomplete information is a necessary feature to explain observed gasoline prices within a sequential search framework.
    JEL: D40 D83 L13
    Date: 2009–09
  13. By: Alexandre de Cornière
    Abstract: This article investigates the role of a search engine as an intermediary between firms and consumers. Search engines enable firms to target consumers who have revealed some specific needs through their query. In a framework with horizontal product differentiation, imperfect product information and in which consumers incur search costs, I show that introducing a "neutral" targeted advertising mechanism reduces social inefficiencies and tends to reduce the equilibrium price. Moreover, the accuracy of the mechanism has a non monotonic effect on the price of the good: the price is lowest when the accuracy is intermediate.
    Date: 2009
  14. By: Robert M. Feinberg; Kara M. Reynolds
    Abstract: While there has been a considerable literature exploring determinants of antitrust enforcement in the United States, studies have been based either on aggregate federal enforcement data over time (exploring cyclical influences) or cross-industry studies, usually for a single year or aggregated over several years. What has never been investigated is the pattern of state-level antitrust. This is somewhat surprising, as this has been a major activity of many state Attorneys General. In this paper, we explain state antitrust enforcement across states and time (for a 15-year period), examining a number of economic and political determinants which have been proposed in the literature.
    Keywords: antitrust enforcement
    JEL: L44
    Date: 2009–09
  15. By: Polder, Michael; Veldhuizen, Erik; Bergen, Dirk van den; Pijll, Eugène van der
    Abstract: This paper investigates competition in the Dutch manufacturing sector. We look at various indicators that have been used throughout the literature and relate these to productivity growth. Moreover, where possible, the indicators and productivity growth are calculated at both the firm and industry level. This enables us to investigate differences in competition and in its relation with productivity for both aggregation levels. Our results indicate that contemporaneous competition is associated with lower productivity, while lagged competition is positively associated with productivity. This finding is consistent between micro and macro, and robust over the various indicators and industries. The results are consistent with the idea that firms first experience negative effects of changes in competition and need time to adjust, while in the period after adjustment productivity rises again.
    Keywords: competition; productivity change; growth accounts; Production Statistics; micro-macro
    JEL: O47 D24 D4
    Date: 2009
  16. By: Joseph A. Clougherty
    Abstract: Motivated by the general lack of empirical scholarship concerning the cross-national environment for competition policy, I present measures here of the overall resources dedicated to competition policy and the merger policy work-load for thirty-two antitrust jurisdictions over the 1992-2007 period. The data allow analysing a number of perceived trends in competition policy over the last two decades, and allow the generation of some factual insights concerning these trends: e.g., the budgetary commitment to competition policy in the cross-national environment for antitrust has substantially increased over this period; budgetary increases appear to be commensurate with increased antitrust workloads; yet, the role of economics does not appear to have substantially increased relative to the role of law. Moreover, I am also able to provide some evidence that budgetary commitments to antitrust institutions yield economic benefits in terms of improved economic growth: i.e., higher budgetary commitments to competition policy are associated with higher levels per-capita GDP growth. <br> <br> <i>ZUSAMMENFASSUNG - (Entwicklungen in der Wettbewerbspolitik und Wirtschaftswachstum: Eine länderübergreifende empirische Untersuchung) <br>Zu den Rahmenbedingungen für Wettbewerbspolitik gibt es kaum länderübergreifende empirische Forschung. Dieser Mangel soll in der vorliegenden Studie behoben werden, in der die Gesamtausgaben für Wettbewerbspolitik und die Arbeitsbelastungen von 32 Kartellbehörden im Zeitraum von 1992 bis 2007 untersucht werden. Die Daten bieten die Möglichkeit, eine Anzahl von erkennbaren Entwicklungen in der Wettbewerbspolitik innerhalb der letzten zwei Jahrzehnte zu analysieren. Folgende Erkenntnisse resultieren: die Gesamtausgaben für Wettbewerbspolitik sind länderübergreifend in der betrachteten Periode erheblich gestiegen; zur Etatsteigerungen sind auch die Arbeitsbelastungen der Behördenmitarbeiter entsprechend gestiegen; dabei hat die ökonomische Expertise jedoch im Vergleich zur juristischen offenbar nicht an Einfluss auf die Wettbewerbspolitik gewonnen. Außerdem kann gezeigt werden, dass die Bereitstellung von finanziellen Mitteln für die Wettbewerbbehörden eines Landes wirtschaftlichen Nutzen stiftet, was sich in einem höheren Wirtschaftswachstum gemessen als höheres BIP-Wachstum pro Kopf niederschlägt.<i>
    Keywords: Competition Policy, Trends, Growth
    JEL: L40 K21 O40 C23
    Date: 2009–11

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