nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒03‒06
seven papers chosen by
Russell Pittman
US Department of Justice

  1. Potential Competition in Preemption Games By Bobtcheff, Catherine; Mariotti, Thomas
  2. Strategic Outsourcing under Economies of Scale By Chen, Yutian; Sen, Debapriya
  3. A Simple Theory of Predation By Chiara Fumagalli; Massimo Motta
  4. Pricing to market when quality matters By Roberto Basile; Sergio de Nardis; Alessandro Girardi
  5. Inferring the Effects of Vertical Integration from Entry Games : An Analysis of the Generic Pharmaceutical Industry By Kubo, Kensuke
  6. Globalization, Markups, and the U.S. Price Level By Robert C. Feenstra; David E. Weinstein
  7. Taxation and Market Power By Konrad, K.A.; Morath, F.; Müller, W.

  1. By: Bobtcheff, Catherine (Toulouse School of Economics (CNRS, LERNA)); Mariotti, Thomas (Toulouse School of Economics (CNRS, GREMAQ, IDEI))
    Abstract: We consider a preemption game with two potential competitors who come into play at some random secret times. The presence of a competitor is revealed to a player only when the former moves, which terminates the game. We show that all perfect Bayesian equilibria give rise to the same distribution of players' moving times. Moreover, there exists a unique perfect Bayesian equilibrium in which each player's behavior from any time on is independent of the date at which she came into play. We find that competitive pressure is nonmonotonic over time, and that private information tends to alleviate rent dissipation. Our results have a natural interpretation in terms of eroding reputations.
    JEL: C73 D82
    Date: 2010–01
  2. By: Chen, Yutian; Sen, Debapriya
    Abstract: Economies of scale in upstream production can lead both disintegrated downstream firms as well as its vertically integrated rival to outsource offshore for intermediate goods, even if offshore production has moderate cost disadvantage compared to in-house production of the vertically integrated firm.
    Keywords: Outsourcing; Economies of Scale
    JEL: L11 L13 D43
    Date: 2010–02–01
  3. By: Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Massimo Motta (Università di Bologna and CEPR)
    Abstract: We propose a simple theory of predatory pricing, based on scale economies and sequential buyers (or markets). The entrant (or prey) needs to reach a critical scale to be successful. The incumbent (or predator) is ready to make losses on earlier buyers so as to deprive the prey of the scale it needs, thus making monopoly profits on later buyers. Several extensions are considered, including markets where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterised by common costs. Conditions under which predation may take place in actual cases are also discussed.
    Keywords: Anticompetitive Behaviour, Exclusion, Below-Cost Pricing, Antitrust
    JEL: K21 L12 L40
    Date: 2010–02
  4. By: Roberto Basile (ISAE - Institute for Studies and Economic Analyses); Sergio de Nardis (ISAE - Institute for Studies and Economic Analyses); Alessandro Girardi (ISAE - Institute for Studies and Economic Analyses)
    Abstract: We build a model of price differentiation with firm heterogeneity, which allows for imperfect competition and market segmentation in the presence of flexible exchange rates as well as horizontal and vertical differentiation and different tastes of consumers in destination markets. We empirically assess the main predictions of our theoretical framework by using firm-level data surveyed by ISAE. We document that export-domestic price margins are significantly affected by price and quality competitiveness even controlling for foreign demand conditions, size, export intensity, destination markets and unobservables. Finally, we provide evidence of a strong heterogeneity across firms in their reaction to price and quality competitiveness.
    Keywords: Pricing to market, qualitative choice models, firm heterogeneity.
    JEL: D21 F10 C23 C25
    Date: 2009–12
  5. By: Kubo, Kensuke
    Abstract: This paper introduces a novel method for examining the effects of vertical integration. The basic idea is to estimate the parameters of a vertical entry game. By carefully specifying firms' payoff equations and constructing appropriate tests, it is possible to use estimates on rival profit effects to make inferences about the existence of vertical foreclosure. I estimate the vertical entry model using data from the US generic pharmaceutical industry. The estimates indicate that vertical integration is unlikely to generate anticompetitive foreclosure effects. On the other hand, significant efficiency effects are found to arise from vertical integration. I use the parameter estimates to simulate a policy that bans vertically integrated entry. The simulation results suggest that such a ban is counterproductive; it is likely to reduce entry into smaller markets.
    Keywords: United States, Pharmaceutical Industry, Monopolies, Vertical Integration, Vertical Foreclosure, Entry, Generic Pharmaceuticals
    JEL: L10 L13 L22 L42 L65
    Date: 2010–01
  6. By: Robert C. Feenstra; David E. Weinstein
    Abstract: This paper is the first attempt to structurally estimate the impact of globalization on markups and welfare in a monopolistic competition model. To achieve this, we work with a class of preferences that allow for endogenous markups and firm entry and exit that are especially convenient for empirical work – the translog preferences, with symmetry in substitution imposed across products. Between 1992 and 2005 we find the U.S. market experienced a series of changes that confirm the predictions of Melitz and Ottaviano (2008): import shares rose and U.S. firms exited, leading to a fall in markups, while product variety and welfare went up. We estimate the impacts of these effects on a national level, and find a cumulative drop of 5.4 percent in merchandise prices and of 1.0 percent in overall consumer prices between 1992 and 2005. Although the magnitude of the welfare gains in our translog setup is similar to that obtained by assuming CES preferences, the sources of these gains are quite different. Variety gains under translog are at least one-third smaller than in the CES case, but there is a substantial reduction in U.S. markups, resulting in a comparable welfare gain overall.
    JEL: E31 F12 F4
    Date: 2010–02
  7. By: Konrad, K.A.; Morath, F.; Müller, W. (Tilburg University, Center for Economic Research)
    Abstract: We analyze the incidence and welfare e¤ects of unit sales taxes in experimental monopoly and Bertrand markets. We …nd, in line with economic theory, that …rms with no market power are able to shift a high share of a tax burden on to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers as the presence of human buyers constrains the pricing behavior of a monopolist.
    Keywords: tax incidence;monopoly;Bertrand competition;experiment
    JEL: H22 L12 L13 C72 C92
    Date: 2010

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