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on Industrial Competition |
| By: | Xavier Boutin (CREST(LEI) and European Commission); Giacinta Cestone (Queen Mary University of London, CSEF, and ECGI); Chiara Fumagalli (Università Bocconi, CSEF, and CEPR); Giovanni Pica (Università di Salerno and CSEF); Nicolas Serrano-Velarde (European University Institute) |
| Abstract: | We provide evidence suggesting that incumbents' access to group deep pockets has a negative impact on entry in product markets. Relying on a unique French data set on business groups, our paper presents three major findings. First, the amount of cash holdings owned by incumbent-affiliated groups is negatively related to entry in a market. Second, the impact on entry of group deep pockets is more important in markets where access to external funding is likely to be more difficult. Third, the “entry deterring effect" of group deep pockets is more pronounced when groups have more active internal capital markets. Our findings suggest that internal capital markets operate within corporate groups and that they have a potential anti-competitive effect. |
| Keywords: | Business Groups, Cash Holdings, Internal Capital Markets, Deep-Pockets, Market Entry |
| JEL: | G32 G38 L41 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.108&r=com |
| By: | Eugen Kovac; Viatcheslav Vinogradov; Krešimir Žigiæ |
| Abstract: | We build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). We identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader’s intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. We also contrast the leader’s investment decisions with those of the social planner. |
| Keywords: | Dynamic oligopoly, endogenous entry, persistence of monopoly, strategic predation, accommodation. |
| JEL: | L12 L13 L41 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp401&r=com |
| By: | Nicholas Bloom (Department of Economics, Stanford University); Raffaella Sadun (Harvard Business School, Strategy Unit); John Van Reenen (Department of Economics, London School of Economics) |
| Abstract: | There is a widespread sense that over the last two decades firms have been decentralizing decisions to employees further down the managerial hierarchy. Economists have developed a range of theories to account for delegation, but there is less empirical evidence, especially across countries. This has limited the ability to understand the phenomenon of decentralization. To address the empirical lacuna we have developed a research program to measure the internal organization of firms - including their decentralization decisions - across a large range of industries and countries. In this paper we investigate whether greater product market competition increases decentralization. For example, tougher competition may make local manager's information more valuable, as delays to decisions become more costly. Since globalization and liberalization have increased the competitiveness of product markets, one explanation for the trend towards decentralization could be increased competition. Of course there are a range of other factors that may also be at play, including human capital, information and communication technology, culture and industrial composition. To tackle these issues we collected detailed information on the internal organization of firms across nations. The few datasets that exist are either from a single industry or (at best) across many firms in a single country . We analyze data on almost 4,000 firms across twelve countries in Europe, North America and Asia. We find that competition does indeed seem to foster greater decentralization. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:10-052&r=com |
| By: | Bonnet, Céline; Dubois, Pierre |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:21625&r=com |
| By: | Chiara Fumagalli (Bocconi University); Massimo Motta (Bologna University and CEPR); Thomas Rønde (Copenhagen Business School and CEPR) |
| Abstract: | This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED. |
| Keywords: | Monopolization Practices, Vertical Agreements |
| JEL: | L12 L40 L42 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.120&r=com |
| By: | Ángel L. López (IESE Business School); Patrick Rey (Toulouse School of Economics (IDEI and GREMAQ)) |
| Abstract: | This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and off-net calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a profitable way. If the incumbent benefits from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough. |
| Keywords: | Access Pricing, Entry Deterrence, Interconnection, Network Competition, Two-way Access |
| JEL: | L41 L51 L96 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.99&r=com |
| By: | Albert Banal-Estañol; Jo Seldeslachts |
| Abstract: | This paper proposes an explanation as to why some mergers fail, based on the interaction between the pre- and post-merger processes. We argue that failure may stem from informational asymmetries arising from the pre-merger period, and problems of cooperation and coordination within recently merged firms. We show that a partner may optimally agree to merge and abstain from putting forth any post-merger effort, counting on the other partner to make the necessary efforts. If both follow the same course of action, the merger goes ahead but fails. Our unique equilibrium allows us to make predictions on which mergers are more likely to fail. |
| Keywords: | Mergers, Synergies, Asymmetric Information, Complementarities |
| JEL: | D82 G34 L20 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1192&r=com |
| By: | Chirco, Alessandra; Colombo , Caterina; Scrimitore, Marcella |
| Abstract: | In this paper we study the role of market competitiveness in a strategic delegation game in which owners delegate output decisions to managers interested in the firm's relative performance. In particular we study how the optimal delegation scheme - i.e. the distortion from pure profit maximization - is affected by market concentration and the elasticity of market demand. We show that these two indexes of market competitiveness do not alter managerial incentives in the same way: while the optimal degree of delegation decreases as the market becomes less concentrated, it increases as demand becomes more elastic. |
| Keywords: | Strategic delegation; relative performance; oligopoly; isoelastic demand |
| JEL: | L13 L21 D43 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19540&r=com |
| By: | Michele Boldrin; David K Levine |
| Date: | 2009–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:814577000000000423&r=com |
| By: | Scopelliti, Alessandro Diego (Department of Economics, University of Warwick) |
| Abstract: | The present work analyzes the interaction between antitrust policy and intellectual property protection, with particular reference to the cases of refusal to supply, when it concerns ideas or inventions protected by an IP right. For this purpose, the paper preliminarily discusses the governing principles of antitrust policy on abuse of dominance and refusal to deal, as they have been implemented in the decisions of the EU Competition Authority, and it presents the specific issues related to the implementation of antitrust policy in the innovative industries. Then, the paper examines in particular the Microsoft Europe Case, as decided by the European Commission in 2004, focusing on the issue of the interoperability between the operating systems for personal computers and the operating systems for work group servers. The theoretical model, developed as an extension of the framework proposed by Choi and Stefanadis (2001) to the case of refusal to deal, suggests an explanation of the case, alternative to the one adopted by the Commission, if not necessarily in the final outcome of the decision, at least in the analytical arguments and in the dynamics of the market structure. In particular, we show that the refusal to supply the compatibility between the two complementary products was determined not only by the intention to leverage its dominant position to the adjacent market of server operating systems, but especially by the concern for keeping the monopoly on its core market, that is the one of PC operating system, given the future evolution of the software market, due to the diffusion of cloud computing. |
| Keywords: | abuse of dominance ; intellectual property ; refusal to supply ; computer software market ; interoperability ; dynamic leverage JEL Codes: K21 ; L12 ; L41 ; L86 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:924&r=com |
| By: | Nadine Lindstädt (Department of Environmental and Business Economics, University of Southern Denmark) |
| Abstract: | Media markets recently have been identified as multisided markets. The application of the theory of multisided markets provides a better understanding of such markets. It enriched the hitherto economic approach and led to new insights and perspectives especially for the antitrust authorities when evaluating competition constraints and mergers. This paper reviews the theory of multisided markets and subsequently applies it to media markets. Finally the paper draws attention to the new perspectives and insights the theory provides but also brings open research questions to light. |
| Keywords: | media economics, two-sided markets, multisided platforms, competition |
| JEL: | L82 A20 L13 M21 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:sdk:wpaper:96&r=com |
| By: | Jessica C. Stahl |
| Abstract: | This paper estimates a dynamic oligopoly model in order to separately identify the demand-side and cost-side advantages of consolidation in the broadcast television industry. I exploit an exogenous change in regulation that led to significant industry consolidation. Using revenue and ownership data for broadcast stations over the past ten years, I estimate the effect of ownership changes on revenue. I recover costs by examining patterns in ownership changes that are left unexplained by revenue estimation. I model firms' purchasing decisions as a dynamic game, and estimate the game using a two-step estimation method recently developed by Bajari, Benkard & Levin (2007). This is the first paper to estimate a model of merger activity in a dynamic, strategic setting. I find that there are both revenue and cost advantages to consolidation, but they operate through different mechanisms. Access to a wider audience enables firms to increase per-station advertising revenue, while simply owning more stations enables firms to reduce per-station operating costs. A firm's ability to realize these benefits is affected by its stations' network affiliations, locations and viewers. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2009-48&r=com |
| By: | Cerasi, Vittoria; Chizzolini, Barbara; Ivaldi, Marc |
| Abstract: | This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers. |
| JEL: | G21 L13 L59 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:21614&r=com |
| By: | Gopalan, Sasidaran; Rajan, Ramkishen. S |
| Abstract: | Over the last decade many emerging Asian economies have been liberalizing their financial sectors, including opening up of their banking systems to foreign competition. This paper examines the extent of de jure and de facto policies in Asia with regard to the introduction of greater foreign competition. To preview the main conclusion, while there has clearly been greater international financial liberalization in the region, Asia lags behind emerging Europe and Latin America when it comes to the relative significance of foreign banks in their respective domestic economies. The paper goes on to discuss possible reasons behind Asia’s relatively cautious approach towards this policy. |
| Keywords: | Financial sector de-regulation; Foreign bank entry; Emerging Asia |
| JEL: | G34 F36 |
| Date: | 2009–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19592&r=com |
| By: | Emilia Magdalena Jurzyk; Hans Degryse; Olena Havrylchyk; Sylwester Kozak |
| Abstract: | We employ a unique data set containing bank-specific information to explore how foreign bank entry determines credit allocation in emerging markets. We investigate the impact of the mode of foreign entry (greenfield or takeover) on banks' portfolio allocation to borrowers with different degrees of informational transparency, as well as by maturities and currencies. The impact of foreign entry on credit allocation may stem from the superior performance of foreign entrants ("performance hypothesis"), or reflect borrower informational capture ("portfolio composition hypothesis"). Our results are broadly in line with the portfolio composition hypothesis, showing that borrower informational capture determines bank credit allocation.m |
| Keywords: | Bank credit , Banks , Borrowing , Economic models , Emerging markets , Foreign exchange , Loans , |
| Date: | 2009–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/270&r=com |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Tobias Duschl (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | In this paper, we compare European and North-American sports leagues from the perspective of platform organization. We find that European leagues can be characterized as open, not only in the sense of promotion and relegation, but also in the sense of attenuated/dispersed property rights and free access on all market sides. North American leagues, on the other hand, are organized as closed platforms with exclusive/concentrated property rights and high entry barriers on all market sides. This difference explains why European clubs outperform their North American counterparts in terms of revenue generation, i.e. value creation, and why North American clubs are much more profitable than most European clubs. European leagues are organized as open platforms, which invite and facilitate participation from all relevant market sides. The absence of concentrated property rights and the possibility of free market entry, however, limit the opportunities of value appropriation. |
| Keywords: | Sports leagues, organization, platform, network effects |
| JEL: | L83 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:iso:wpaper:0119&r=com |
| By: | Guido Buenstorf; Steven Klepper |
| Abstract: | Beginning in 1922, the rate of exit of U.S. tire producers increased sharply and the industry began a severe and protracted shakeout. Just five years earlier, the tire industry experienced a surge in entry that led to a rise of over 80% in the number of producers. We propose an explanation for this episode based on the idea of industry submarkets, which we incorporate in a model of shakeouts. We test this theory and alternative explanations for the surge in entry and exit and the shakeout using a novel data set on patenting in tires and production in the early 1920s of the cord tire, a key innovation we feature in our theory. Our analysis suggests that the development of a new submarket can open up opportunities for entry but also stimulate innovation and in the process reinforce the advantages of the leading incumbents, accentuating the shakeout of producers. |
| Keywords: | Submarkets, Innovation, Shakeouts Length 31 pages |
| JEL: | L65 R12 R30 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:esi:evopap:2009-15&r=com |
| By: | Paul Conway; Tatiana Lysenko; Geoff Barnard |
| Abstract: | This paper uses the OECD’s indicators of product market regulation (PMR) to assess the extent to which the regulatory environment in Russia supports competition and to draw attention to the areas where further reform efforts would pay dividends. The indicators show that, despite improvements in some areas, many aspects of Russia’s regulatory framework are still restrictive, which provides considerable scope for reaping gains from bringing regulation into line with international best practice. In particular, the scores suggest that Russia’s economic performance would greatly benefit from a reduction in the role of the state enterprise sector in markets that are inherently competitive and reinvigorated efforts to liberalise foreign trade and direct investment regimes. In some network sectors, recent regulatory changes have significantly improved the scope for competition. However, ongoing work needs to focus on separating competitive and monopoly market segments and eliminating barriers to entry. In addition, the authorities need to develop the capacity and strengthen the hands of the sectoral regulators. Introducing an overarching competition policy would also help bring the issue of competition to centre stage and spread a competition ethos through different levels of government.<P>La réglementation des marchés de produits en Russie<BR>Cette étude utilise les indicateurs de réglementation des marchés de produits (RMP) afin d'évaluer le degré auquel l'environnement réglementaire en Russie est favorable à la concurrence et d'identifier les domaines où des réformes supplémentaires seraient bénéfiques pour l'économie Russe. Les indicateurs révèlent que, malgré des améliorations dans certains domaines, plusieurs aspects de l'approche réglementaire restent restrictifs, ce qui laisse beaucoup de marge pour récolter des bénéfices économiques d'un alignement de la réglementation avec les meilleures pratiques internationales. En particulier, les valeurs des indicateurs suggèrent que la performance économique de la Russie bénéficierait de façon importante d'une réduction du rôle du secteur des entreprises publiques dans les marchés qui sont par nature concurrentiels et d'un renforcement des efforts pour libéraliser les régimes du commerce extérieur et de l'investissement direct étranger. Dans certaines industries de réseau, des changements réglementaires récents ont favorisé la concurrence. Cependant, un travail soutenu sera nécessaire afin de séparer les segments du marché qui sont par nature concurrentiels de ceux qui sont monopolistiques et d'éliminer les obstacles à la concurrence. Les autorités devraient aussi développer les capacités et renforcer les pouvoirs des régulateurs sectoriels. La création d'une politique globale de concurrence aiderait à mettre la question de concurrence au devant de la scène et de transmettre un esprit de la concurrence à travers les différents niveaux du gouvernement. |
| Keywords: | competition, corruption, foreign direct investment, growth, Russia, state ownership, trade, transition, concurrence, corruption, croissance, échanges, investissement direct étranger, propriété de l’État, réglementation des marchés de produits, Russie, transition |
| JEL: | F13 H1 H82 H83 K20 K21 L31 L32 L33 L4 L5 P2 P3 |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:742-en&r=com |